FRANKLIN RISING
DIVIDENDS FUND
Franklin Managed Trust
PROSPECTUS February 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
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Franklin Managed Trust (the "Trust") is an open-end management investment
company consisting of three separate series. This Prospectus pertains only to
the Franklin Rising Dividends Fund (the "Fund"), a diversified series of the
Trust.
The objective of the Fund is to seek long-term capital appreciation primarily
through investment in the equity securities of companies that have paid
consistently rising dividends over the past ten years. Preservation of capital
is also an important consideration. The Fund seeks current income incidental to
long-term capital appreciation.
The Fund offers two classes of shares: Franklin Rising Dividends Fund - Class I
("Class I") and Franklin Rising Dividends Fund - Class II ("Class II"). You can
choose between Class I shares, which generally bear a higher front-end sales
charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and
Class II shares, which generally have a lower front-end sales charge and higher
ongoing Rule 12b-1 fees. You should consider the differences between the two
classes, including the impact of sales charges and Rule 12b-1 fees, in choosing
the more suitable class given your anticipated investment amount and time
horizon. See "How Do I Buy Shares? - Deciding Which Class to Buy."
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful to have.
An SAI concerning the Trust, dated February 1, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table............................................ 3
Financial Highlights - How
Has the Fund Performed?................................. 4
What Is the Franklin Managed Trust?...................... 5
How Does the Fund Invest Its Assets?..................... 5
How You Participate in the Results
of the Fund's Activities................................ 7
Who Manages the Fund?.................................... 7
What Distributions Might
I Receive from the Fund?................................ 9
How Taxation Affects You and the Fund.................... 11
How Do I Buy Shares?..................................... 12
What Programs and Privileges Are
Available to Me as a Shareholder?....................... 18
What If My Investment Outlook
Changes? - Exchange Privilege........................... 20
How Do I Sell Shares?.................................... 24
Telephone Transactions................................... 28
How Are Fund Shares Valued?.............................. 29
How Do I Get More Information
About My Investment?.................................... 29
How Does the Fund
Measure Performance?.................................... 30
General Information...................................... 31
Registering Your Account................................. 32
Important Notice Regarding
Taxpayer IRS Certifications............................. 33
Useful Terms and Definitions............................. 33
Expense Table
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of each class for the fiscal year ended September 30, 1995. The Class
II figures are annualized.
Class I Class II
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Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................. 4.50% 1.00%+
Deferred Sales Charge................................ NONE++ 1.00%+++
Exchange Fee (per transaction)....................... $5.00* $5.00*
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees...................................... 0.75% 0.75%
Rule 12b-1 Fees...................................... 0.46%** 0.93%**
Other Expenses:......................................
Shareholder Servicing Costs........................ 0.09% 0.09%
Reports to Shareholders............................ 0.06% 0.06%
Other.............................................. 0.07% 0.07%
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Total Other Expenses................................. 0.22% 0.22%
Total Fund Operating Expenses........................ 1.43% 1.90%
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+Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fees for Class II may cause you to pay more for Class II
shares than for Class I shares. Given the maximum front-end sales charge and the
rate of Rule 12b-1 fees of each class, it is estimated that this will take less
than six years if you maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. If your investments in the Franklin Templeton Funds
are valued at $100,000 or more, you will reach the crossover point more quickly.
++Class I investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally imposed
on certain redemptions within a "contingency period" of 12 months of the
calendar month of such investments. See "How Do I Sell Shares? - Contingent
Deferred Sales Charge."
+++Class II shares redeemed within a "contingency period" of 18 months of the
calendar month of investment are subject to a 1% contingent deferred sales
charge. See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
**The maximum amount of Rule 12b-1 fees allowed pursuant to the Class I
distribution plan is 0.50%, and the maximum amount allowed pursuant to the Class
II distribution plan is 1.00%. See "Who Manages the Fund? - Plans of
Distribution." Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end sales charges and
Rule 12b-1 fees could cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under those same
rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charge, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.
One Year Three Years Five Years Ten Years
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Class I......... $59* $88 $120 $209
Class II........ $39 $69 $112 $230
*Assumes that a contingent deferred sales charge will not apply to Class I
shares.
You would pay the following expenses on the same investment, assuming no
redemption.
One Year Three Years Five Years Ten Years
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Class II........ $29 $69 $112 $230
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are paid by the Fund
and borne by you as a result of your investment in the Fund. In addition,
federal securities regulations require the example to assume an annual return of
5%, but the Fund's actual return may be more or less than 5%.
Financial Highlights - How Has the Fund Performed?
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Set forth below is a table containing the financial highlights for a share of
Class I of the Fund from the effective date of the registration statement
through each of the fiscal years ended December 31, 1992, for the nine-month
period ended September 30, 1993 (annualized as a result of a change in fiscal
year end from December to September) and for the two fiscal years ended
September 30, 1994 and 1995, and for a share of Class II for the period May 1,
1995 to September 30, 1995. The information for each of the fiscal periods from
January 1, 1991 to September 30, 1995, has been audited by Tait, Weller and
Baker, independent auditors, whose audit report appears in the financial
statements in the Trust's Annual Report to Shareholders dated September 30,
1995. The remaining figures, which are also audited, are not covered by the
auditors' current report. See "Reports to Shareholders" under "General
Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
---------------------------------------------------- ----------------------------
Net Asset Net Realized DistributionsNet Asset Net Assets Ratio of Ratio of
Value at Net & Unrealized Total From From Net Values at End Expenses Net Income Portfolio
Year BeginningInvestment Gain (Loss) Investment Investment at End Total of Year to Average to Average Turnover
Ended of Year Income on SecuritiesOperations Income of Year Return+ (In 000's) Net Assets Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987** $10.00 $0.28 $(1.370) $(1.090) $(0.190) $8.72 (11.25)%$ 33,418 1.79%* 3.06%* 44.57%
1988++ 8.72 0.33 1.280 1.610 (0.320) 10.01 18.80 31,792 1.62 3.44 18.19
1989 10.01 0.37 1.560 1.930 (0.360) 11.58 19.60 40,550 1.70 3.28 26.87
1990 11.58 0.33 (0.310) 0.020 (0.390) 11.21 .26 39,907 1.60 2.99 28.87
1991 11.21 0.28 3.720 4.000 (0.300) 14.91 35.95 71,380 1.53 2.16 16.83
1992 14.91 0.24 1.290 1.530 (0.260) 16.18 10.38 197,804 1.46 1.67 12.73
1993*** 16.18 0.19 (0.745) (0.555) (0.195) 15.43 (3.43) 356,708 1.40* 1.73* 11.48
1994 15.43 0.28 (0.800) (0.520) (0.240) 14.67 (3.38) 261,461 1.43 1.81 25.75
1995 14.67 0.33 2.608 2.938 (0.298) 17.31 20.32 260,917 1.43 2.10 14.60
Class II Shares
1995+++ 15.47 0.11 1.826 1.936 (0.126) 17.28 12.56 1,060 1.90* 1.92* 14.60
</TABLE>
*Annualized
**For the period January 14, 1987 (effective date of registration) to December
31, 1987.
***For the period ended September 30, 1993.
+Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.
++On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Franklin Advisers, Inc.
+++For the period May 1, 1995 to September 30, 1995.
What Is the Franklin Managed Trust?
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The Fund is a diversified series of the Trust, an open-end management investment
company commonly called a "mutual fund," consisting of three separate
portfolios. Each portfolio or fund is a separate series of shares of beneficial
interest. The Trust was organized as a Massachusetts business trust on July 1,
1986 and registered with the SEC under the 1940 Act. The Fund has two classes of
shares of beneficial interest ("multiclass" structure) with a par value of $.01:
Franklin Rising Dividends Fund - Class I and Franklin Rising Dividends Fund -
Class II. All Fund shares outstanding before May 1, 1995 have been redesignated
as Class I shares and will retain their previous rights and privileges, except
for legally required modifications to shareholder voting procedures, as
discussed in "General Information - Organization and Voting Rights."
You may purchase shares of the Fund (minimum investment of $100 initially and
$25 thereafter) at the current public offering price of the class you wish to
purchase. Please see "How Do I Buy Shares?"
How Does the Fund Invest Its Assets?
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The objective of the Fund is long-term capital appreciation. The objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. Preservation of capital, while not an objective, is also an important
consideration. Incidental to seeking its investment objective of long-term
capital appreciation, the Fund seeks current income. Of course, there is no
assurance that the Fund's objective will be achieved.
Types of Securities the Fund May Purchase
The Fund seeks to achieve its investment objective of long-term capital
appreciation by investing at least 65% of its total assets in financially sound
companies that have paid consistently rising dividends (as described below)
based on the investment philosophy of the Fund's Manager that the securities of
such companies, because of their dividend record, have a strong potential to
increase in value. The Fund diversifies its investments among different
companies in different industry segments with no more than 25% of the Fund's
portfolio concentrated in any one industry. Normally, the Fund's investments are
in common stocks, securities convertible into common stocks, or rights or
warrants to subscribe for or purchase common stocks. However, in any period of
stock market weakness or of uncertain market or economic conditions as
determined by the Manager, the Fund may establish a defensive position to
preserve capital by temporarily having all or a part of its assets invested in
short-term, fixed-income securities or retained in cash or cash equivalents.
These investments would include U.S. government securities, bank certificates of
deposit, bankers' acceptances and high-quality commercial paper issued by
domestic corporations.
As a fundamental policy, under normal market conditions at least 65% of the
Fund's portfolio is invested in the securities of companies that meet the
following criteria:
Consistent dividend increases - A company should have increased its dividend in
at least eight out of the last ten years with no year showing a decrease.
Substantial dividend increases - A company must have increased its dividend at
least 100% over the past ten years.
Reinvested earnings - Dividend payout should be less than 65% of current
earnings (except for utility companies).
Strong balance sheet - Long-term debt should be no more than 30% of total
capitalization (except for utility companies).
Attractive price - The current price should either be in the lower half of the
stock's price/earnings ratio range for the past ten years or less than the
current market price/earnings ratio of the stocks comprising the Standard &
Poor's 500 Stock Index. This criterion applies only at the time of purchase.
The remaining 35% of the Fund's assets typically are invested in dividend-paying
equity securities with similar characteristics that may not meet all of the
criteria listed above.
The Manager also considers other factors, such as return on shareholder's
equity, rate of earnings growth and anticipated price/earnings ratios, in
selecting investments for the Fund.
The Manager believes that a focus on companies with a pattern of rising
dividends will help the Fund attain its objective of long-term capital
appreciation. In addition, because capital preservation is an important
consideration, the Manager also reviews a company's stability and the strength
of its balance sheet in selecting among eligible growth companies generally.
The Fund may purchase American Depository Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to receive securities
of a foreign issuer deposited with that bank or a correspondent bank.
Other Policies of the Fund
Repurchase Agreements. For temporary defensive purposes, or as an interim
investment pending longer-term investment in securities meeting the Fund's
special criteria, the Fund may engage in repurchase transactions in which the
Fund purchases a U.S. government security subject to resale to a bank or dealer
at an agreed-upon price and date. The transaction requires the collateralization
of the seller's obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the dollar amount
invested by the Fund in each agreement, with the value of the underlying
security marked-to-market daily to maintain coverage of at least 100%. A default
by the seller might cause the Fund to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Fund might
also incur disposition costs in liquidating the collateral. The Fund, however,
intends to enter into repurchase agreements only with financial institutions
such as broker-dealers and banks which are deemed creditworthy by the Manager. A
repurchase agreement is deemed to be a loan by the Fund under the 1940 Act. The
U.S. government security subject to resale (the collateral) will be held on
behalf of the Fund by a custodian approved by the Board and will be held
pursuant to a written agreement.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) or restricted securities may not constitute, at the time of
purchase, more than 10% of the value of the total net assets of the Fund.
Borrowing. The Fund may borrow money only from banks for temporary or emergency
purposes in amounts not to exceed 15% of the Fund's total assets, and additional
investments may not be made while any amounts borrowed are in excess of 5% of
the Fund's total assets.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see "How Do the Funds Invest
Their Assets?" and "Investment Restrictions" in the SAI.
How You Participate in
the Results of the Fund's Activities
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The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity markets.
A decline in the market, expressed for example by a drop in the Dow Jones
Industrials, the Standard & Poor's 500 average or any other equity based index,
may also be reflected in declines in the Fund's share price. History reflects
both increases and decreases in the valuation of the market, and these may
reoccur unpredictably in the future.
Who Manages the Fund?
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The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should arise.
In developing the multiclass structure, the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 34 U.S. registered investment companies (117 separate series) with aggregate
assets of over $78 billion.
The team responsible for the day-to-day management of the Fund's portfolio is:
Bruce C. Baughman and William Lippman since the Fund's inception under L.F.
Rothschild Fund Management, Inc. and Margaret McGee since 1988.
Bruce C. Baughman
Portfolio Manager of Advisers
Mr. Baughman holds a bachelor of arts degree from Stanford University and a
master's degree in science - accounting from New York University. He has been
with Advisers since 1988. Mr. Baughman is a member of several securities
industry-related committees and associations.
William Lippman
Senior Vice President of Advisers
Mr. Lippman holds a bachelor's degree in business administration from City
College New York and a master's degree in business administration from the
Graduate School of Business Administration of New York University. He has been
with Advisers since 1988.
Margaret McGee
Portfolio Manager of Advisers
Ms. McGee holds a bachelor of arts degree from William Patterson College. She
has been with Advisers since 1988
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Trust's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Trust's
Code of Ethics.
During the fiscal year ended September 30, 1995, management fees totaling 0.75%
of the average daily net assets of the Fund were paid to Advisers. The
management fees are higher than the management fees paid by most mutual funds,
although the Board believes them to be comparable to fees paid by many funds
having similar investment objectives and policies, and reasonable in light of
the level of services provided by the Manager.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund as
factors in selecting a broker. Further information is included under "How Do the
Funds Purchase Securities For Their Portfolios?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended September 30, 1995, expenses borne by Class I
shares of the Fund, including fees paid to Advisers and to Investor Services,
totaled 1.43% of the average daily net assets of Class I. For the period May 1,
1995 through September 30, 1995, the annualized expenses borne by Class II
shares of the Fund, including fees paid to Advisers and to Investors Services,
totaled 1.90% of the average daily net assets of Class II.
Plans of Distribution
A separate plan of distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan," respectively, or "Plan(s)") pursuant to
Rule 12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class are
based solely on the distribution and, with respect to the Class II Plan,
servicing fees attributable to that particular class. Under either Plan, the
portion of fees remaining after payment to securities dealers or others for
distribution or servicing may be paid to Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares.
The maximum amount which the Fund may reimburse to Distributors or others under
the Class I Plan for such distribution expenses is 0.25% per annum of Class I's
average daily net assets, payable on a monthly basis. In addition, pursuant to
the Class I Plan, the Fund may pay Distributors or others a service fee to
reimburse such parties for personal services provided to shareholders of the
Fund and/or the maintenance of shareholder accounts. The total amount of service
fees paid by the Fund shall not exceed 0.25% per annum of Class I's average
daily net assets. These payments are made pursuant to distribution and/or
service agreements entered into between the service providers and Distributors
or the Fund directly. The maximum amount which the Fund may pay on a yearly
basis for the promotion and distribution of shares, including service fees,
under the Class I Plan is 0.50% per annum of the average daily net assets of the
Fund. Payments in excess of reimbursable expenses under the Class I Plan in any
year must be refunded. Further, expenses of Distributors, other than for service
fees, in excess of 0.25% per annum of the Fund's average daily net assets that
otherwise qualify for payment may not be carried forward into successive annual
periods.
Under the Class II Plan, the Fund pays to Distributors distribution and related
expenses up to 0.75% per annum of Class II's average daily net assets, payable
quarterly. These fees may be used in order to compensate Distributors or others
for providing distribution and related services and bearing certain expenses of
the class. All expenses of distribution, marketing and related services over
that amount will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan provides for
an additional payment by the Fund of up to 0.25% per annum of Class II's average
daily net assets as a servicing fee, payable quarterly. This fee will be used to
pay securities dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering correspondence;
monitoring dividend payments from the Fund on behalf of customers, or similar
activities related to furnishing personal services and/or maintaining
shareholder accounts.
Either Distributors or one of its affiliates may pay, from its own resources, a
commission of up to 1% of the purchase price of Class II shares to securities
dealers who initiate and are responsible for such purchases. During the first
year following such purchases, Distributors will retain a portion of Class II's
Rule 12b-1 fees attributable to such shares equal to 0.75% per annum of Class
II's average daily net assets to partially recoup fees Distributors pays to
securities dealers in connection with initial purchases of Class II shares.
Both Plans cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund. For more
information please see "The Trust's Underwriter" in the SAI.
What Distributions Might I Receive from the Fund?
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You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of these distributions for
operational or other reasons.
Distributions To Each Class of Shares
According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Distribution Date
Although subject to change by the Board without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends quarterly
in March, June, September and December for shareholders of record on the last
business day of the preceding month, payable on or about the 15th day of the
following month.
The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date. The Fund does
not pay "interest" or guarantee any fixed rate of return on an investment in its
shares.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
Distribution Options
You may choose to receive your distributions from the Fund in any of these ways:
1. Purchase additional shares of the Fund - You may purchase additional shares
of the same class of the Fund (without a sales charge or imposition of a
contingent deferred sales charge) by reinvesting capital gain distributions, or
both dividend and capital gain distributions. If you are a Class II shareholder,
you may also reinvest your distributions in Class I shares of the Fund. This is
a convenient way to accumulate additional shares and maintain or increase your
earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). If you are a Class II shareholder, you may also direct your
distributions to purchase Class I shares of another Franklin Templeton Fund.
Many shareholders find this a convenient way to diversify their investments.
3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
To select one of these options, please complete sections 6 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the same class of
the Fund. You may change the distribution option selected at any time by
notifying the Fund by mail or by telephone. Please allow at least seven days
prior to the record date for the Fund to process the new option.
How Taxation Affects You and the Fund
- --------------------------------------------------------------------------------
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends which you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if paid by the
Fund and received by you on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or a loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
100% of the income dividends paid by the Fund for the fiscal year ended
September 30, 1995 qualified for the corporate dividends-received deduction,
subject to certain holding period and debt financing restrictions imposed under
the Code on the corporation claiming the deduction.
Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and net
short-term capital gain (in excess of any net long-term capital loss or capital
loss carryover) included in investment company taxable income and distributed by
the Fund as a dividend will not qualify for the dividends-received deduction.
Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid or
accrued by a corporate shareholder is directly attributable to its investment in
Fund shares. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the federal alternative
minimum tax is computed and may also result in a reduction in the shareholder's
tax basis in its Fund shares, under certain circumstances, if the shares have
been held for less than two years. Corporate shareholders whose investment in
the Fund is "debt financed" for these tax purposes should consult with their tax
advisors concerning the availability of the dividends-received deduction.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
You should consult your tax advisors with respect to the applicability of state
and local intangible property or income taxes to your shares in the Fund and to
distributions and redemption proceeds received from the Fund.
How Do I Buy Shares?
- --------------------------------------------------------------------------------
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. If you are buying
shares through a retirement plan established by the Franklin Templeton Group,
these minimums may be waived. To open your account, contact your investment
representative or complete and sign the enclosed Shareholder Application and
return it to the Fund with your check. Please indicate which class of shares you
want to buy. If you fail to specify a class, your purchase will automatically be
invested in Class I shares.
Deciding Which Class to Buy
When deciding which class of shares to buy, you should consider a number of
factors, including the amount you expect to invest and the length of time you
expect to hold your investment. If you plan to invest $1 million or more in a
single payment or you qualify to buy Class I shares at net asset value, you may
not buy Class II shares.
Generally, you should consider buying Class I shares if:
o you expect to invest in the Fund over the long term;
o you qualify to buy Class I shares at a reduced sales charge; or
o you intend to purchase $1 million or more over time.
You should consider Class II shares if:
o you expect to invest less than $100,000 in Franklin Templeton Funds; and
o you intend to make substantial redemptions within approximately six years or
less of investment.
Class I shares are generally more attractive for long-term investors because of
Class II's higher Rule 12b-1 fees, which accumulate over time to outweigh the
lower Class II front-end sales charge and result in lower income dividends for
Class II shareholders. If you qualify to buy Class I shares at a reduced sales
charge based upon the size of your purchase or through our Letter of Intent or
Rights of Accumulation programs, but intend to hold your shares less than
approximately six years, you should evaluate whether it is more economical for
you to buy Class I or Class II shares.
For purchases of $1 million or more, it is considered more beneficial for you to
buy Class I shares since there is no front-end sales charge, even though these
purchases may be subject to a contingent deferred sales charge. Any purchase of
$1 million or more will therefore be automatically invested in Class I shares.
You may accumulate more than $1 million in Class II shares through purchases
over time, but if you intend to do this you should determine whether it would be
more beneficial for you to buy Class I shares through a Letter of Intent.
Please consider all of these factors before deciding which class of shares to
buy. There are no conversion features attached to either class of shares.
Purchase Price of Fund Shares
You may buy shares at the public offering price of the class you wish to
purchase, unless you qualify to purchase shares at a discount or without a sales
charge as discussed below. The front-end sales charge for Class II shares is 1%
and, unlike Class I shares, does not vary based upon the size of your purchase.
<TABLE>
<CAPTION>
Total Sales Charge
As a Percentage of Amount Allowed to
Net Amount Dealer as a Percentage
Size of Transaction at Offering Price Offering Price Invested of Offering Price*
- ------------------------------------------------------------------------------------------------------------
Class I
<S> <C> <C> <C>
Under $100,000........................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000....... 3.75% 3.90% 3.25%
$250,000 but less than $500,000....... 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000..... 2.25% 2.30% 2.00%
$1,000,000 or more.................... None** None None***
Class II
Under $1,000,000+..................... 1.00%** 1.01% 1.00%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times allow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on: (i) certain
redemptions of all or a part of an investment of $1 million or more in Class I
shares; and (ii) redemptions of Class II shares within 18 months of their
purchase. See "How Do I Sell Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of commissions Distributors may pay to securities dealers out of its
own resources.
+Purchases of Class II shares are limited to purchases below $1 million. See
"Deciding Which Class to Buy."
The offering price for each class will be calculated to two decimal places using
standard rounding criteria.
Quantity Discounts in Sales
Charges - Class I Shares Only
As shown in the table above, the sales charge you pay when you buy Class I
shares may be reduced based upon the size of your purchase.
Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current Class I purchase. To receive the reduction, you or
your investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase Class I shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you pay
on Class I shares. You or your investment representative must inform us that the
Letter is in effect each time you purchase shares.
By completing the Letter of Intent section of the Shareholder Application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Class I shares registered in your name.
o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.
o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
o Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase
Class I shares at the reduced sales charge applicable to the group as a whole.
The sales charge is based on the combined dollar value of the group members'
existing investments, plus the amount of the current purchase. For example, if
group members previously invested and still hold $80,000 of Fund shares and
invest $25,000, the sales charge will be 3.75%.
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount
and (iii) satisfies uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
Purchases at Net Asset Value
You may invest money from the following sources in Class I shares of the Fund
without paying front-end or contingent deferred sales charges. You may also
purchase Class II shares without paying front-end or contingent deferred sales
charges if the source of your investment proceeds is included in paragraph (i)
below:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. When you return the distribution, please include a written request to
reinvest the money at net asset value. You may reinvest Class II distributions
in either Class I or Class II shares, but Class I distributions may only be
invested in Class I shares under this privilege. For more information, see
"Distribution Options" under "What Distributions Might I Receive From the Fund?"
or call Shareholder Services at 1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. When you return the
distribution, please include a written request to reinvest the money at net
asset value. The distribution must be returned to the Fund within 365 days of
the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds in Class I or Class II shares of the Fund at net asset value. To
do so, you must (a) have paid a sales charge on the purchase or sale of the
original shares, (b) reinvest the redemption money in the same class of shares,
and (c) request the reinvestment of the money in writing to the Fund within 365
days of the redemption date. You may reinvest up to the total amount of the
redemption proceeds under this privilege. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. While you will receive credit for any contingent deferred
sales charge paid on the shares redeemed, a new contingency period will begin.
Shares that were no longer subject to a contingent deferred sales charge will be
reinvested at net asset value and will not be subject to a new contingent
deferred sales charge. Shares exchanged into other Franklin Templeton Funds are
not considered "redeemed" for this privilege (see "What If My Investment Outlook
Changes? - Exchange Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase Class I shares of the
Fund at net asset value regardless of the source of the investment proceeds. If
you or your account is included in one of the categories below, none of the
Class I shares you purchase will be subject to front-end or contingent deferred
sales charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their investment
accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13-month period. We will accept orders for
such accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with payment
by federal funds received by the close of business on the next business day
following such order;
(x) insurance company separate accounts investing for pension plan contracts;
(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $10 million or
more, without regard to where such assets are currently invested; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements described under "Group Purchases," above.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
How Do I Buy Shares in Connection
with Tax-Deferred Retirement Plans?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236). Trust Company is an affiliate of Distributors.
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
General
The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for Class I purchases of $1 million or more: 1% on sales of $1
million but less than $2 million, plus 0.80% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months for
purposes of additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for Class I
purchases made at net asset value by any of the entities described in paragraphs
(ix), (xi) or (xii) under "Purchases at Net Asset Value" above. Please see "How
Do I Buy and Sell Shares?" in the SAI for the breakpoints applicable to these
purchases.
For Class II purchases, either Distributors or one of its affiliates may pay
securities dealers, out of its own resources, up to 1% of the purchase price. To
partially recoup these payments, Distributors will keep part of the Rule 12b-1
fees assessed to the shares during the first year following their purchase.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the United States. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation if prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers and
Trustees."
What Programs and Privileges Are
Available to Me as a Shareholder?
- --------------------------------------------------------------------------------
Certain of the programs and privileges described in this section may not be
available directly from the Fund if your shares are held, of record, by a
financial institution or in a "street name" account or networked account through
the National Securities Clearing Corporation ("NSCC") (see "Registering Your
Account" in this Prospectus).
Share Certificates
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.
Confirmations
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
Automatic Investment Plan
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you.
Redemptions under a Systematic Withdrawal Plan are considered a sale for federal
income tax purposes. Because the amount withdrawn under the plan may be more
than your actual yield or income, part of the payment may be a return of your
investment.
While a Systematic Withdrawal Plan is in effect, shares must be held in plan
balance or, where share certificates are outstanding, deposited with the Fund.
You should ordinarily not make additional investments in the Fund of less than
$5,000 or three times the amount of annual withdrawals under the plan because of
the sales charge on additional purchases. Shares redeemed under the plan may
also be subject to a contingent deferred sales charge. Please see "Contingent
Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
Electronic Fund Transfers
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
Institutional Accounts
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
What If My Investment Outlook Changes? - Exchange Privilege
- --------------------------------------------------------------------------------
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Some funds, however, may not
offer Class II shares. Class I shares may be exchanged for Class I shares of any
of the other Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any of the other Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent deferred sales
charge will not be imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the original fund purchased and
shares are subsequently redeemed within the contingency period, a contingent
deferred sales charge will be imposed. Before making an exchange, you should
review the prospectus of the fund you wish to exchange from and the fund you
wish to exchange into for all specific requirements or limitations on exercising
the exchange privilege, for example, limitations on a fund's sale of its shares,
minimum holding periods for exchanges at net asset value, or applicable sales
charges.
You may exchange shares in any of the following ways:
By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
By Telephone
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not
wish this privilege extended to a particular account, you should notify the Fund
or Investor Services.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
Exchanges of the same class of shares are made on the basis of the net asset
value of the class involved, except as set forth below. Exchanges of shares of a
class which were purchased without a sales charge will be charged a sales charge
in accordance with the terms of the prospectus of the fund and the class of
shares being purchased, unless the original investment in the Franklin Templeton
Funds was made pursuant to the privilege permitting purchases at net asset
value, as discussed under "How Do I Buy Shares?" Exchanges of Class I shares of
the Fund which were purchased with a lower sales charge into a fund which has a
higher sales charge will be charged the difference, unless the shares were held
in the Fund for at least six months prior to executing the exchange.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Exchanges of Class I Shares
The contingency period during which a contingent deferred sales charge may be
assessed for Class I shares will be tolled (or stopped) for the period such
shares are exchanged into and held in a Franklin or Templeton Class I money
market fund. If a Class I account has shares subject to a contingent deferred
sales charge, Class I shares will be exchanged into the new account on a
"first-in, first-out" basis. See "How Do I Sell Shares? - Contingent Deferred
Sales Charge" for a discussion of investments subject to a contingent deferred
sales charge.
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the contingent
deferred sales charge and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if you have
$1,000 in free shares, $2,000 in matured shares, and $3,000 in CDSC liable
shares and you exchange $3,000 into a new fund, $500 will be exchanged from free
shares, $1,000 from matured shares, and $1,500 from CDSC liable shares.
Similarly, if CDSC liable shares have been purchased at different periods, a
proportionate amount will be taken from shares held for each period. If, for
example, you hold $1,000 in shares bought 3 months ago, $1,000 bought 6 months
ago, and $1,000 bought 9 months ago and you exchange $1,500 into the new fund,
$500 from each of these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may Class II shareholders purchase shares of Money Fund II
directly. Class II shares exchanged for shares of Money Fund II will continue to
age, for purposes of calculating the contingent deferred sales charge, because
they continue to be subject to Rule 12b-1 fees. The contingent deferred sales
charge will be assessed if CDSC liable shares are redeemed. Class I shares may
be exchanged for shares of any of the money market funds in the Franklin
Templeton Funds except Money Fund II. Draft writing privileges and direct
purchases are allowed on these other money market funds as described in their
respective prospectuses.
To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a contingent deferred sales charge. The proportional method is
believed by management to more closely meet and reflect the expectations of
Class II shareholders in the event shares are redeemed during the contingency
period. For federal income tax purposes, the cost basis of shares redeemed or
exchanged is determined under the Code without regard to the method of
transferring shares chosen by the Fund.
Retirement Plan Accounts
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
Timing Accounts
Accounts which are administered by allocation or market timing services to
exchange shares based on predetermined market indicators ("Timing Accounts")
will be charged a $5.00 administrative service fee per each such exchange. All
other exchanges are without charge.
Restrictions on Exchanges
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated under "How Do I Buy Shares?", reserve
the right to refuse any order for the purchase of shares.
Transfers
Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.
Conversion Rights
It is not presently anticipated that Class II shares will be convertible to
Class I shares. You may, however, sell Class II shares and use the proceeds to
purchase Class I shares, subject to all applicable sales charges.
How Do I Sell Shares?
- --------------------------------------------------------------------------------
You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may redeem shares in any of the following ways:
By Mail
Send a written request signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the class of shares redeemed based upon the net asset value per share
(less a contingent deferred sales charge, if applicable) next computed after the
written request in proper form is received by Investor Services. Redemption
requests received after the time at which the net asset value is calculated will
receive the price calculated on the following business day. The net asset value
per share of each class is determined as of the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) each day that the Exchange is open for
trading. You are requested to provide a telephone number where you may be
reached during business hours, or in the evening if preferred. Investor
Services' ability to contact you promptly when necessary will speed the
processing of the redemption.
To be considered in proper form, signatures must be guaranteed if the redemption
request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of
$50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more joint
owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions to the Fund, (c) the Fund has
been notified of an adverse claim, (d) the instructions received by the
Fund are given by an agent, not the actual registered owner, (e) the Fund
determines that joint owners who are married to each other are separated
or may be the subject of divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your own protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
By Telephone
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities which qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
Through Securities Dealers
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund and the class, the account number, the fact
that the repurchase was ordered by a dealer and the dealer's name. Details of
the dealer-ordered trade, such as trade date, confirmation number, and the
amount of shares or dollars, will help speed processing of the redemption. The
seven-day period within which the proceeds of your redemption will be sent will
begin when the Fund receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn dividends or
interest during the time between receipt of the dealer's repurchase order and
the date the redemption is processed upon receipt of all documents necessary to
settle the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers, all or a portion of
Class I investments of $1 million or more and any Class II investments redeemed
within the contingency period (12 months for Class I and 18 months for Class II)
will be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the lesser of the value
of the shares redeemed (exclusive of reinvested dividends and capital gain
distributions) or the net asset value at the time of purchase of such shares,
and is retained by Distributors. The contingent deferred sales charge is waived
in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge on each class of shares is waived, as
applicable, for: specified net asset value purchases discussed under "How Do I
Buy Shares? - Purchases at Net Asset Value;" exchanges; any account fees;
distributions from an individual retirement plan account due to death or
disability or upon periodic distributions based on life expectancy; tax-free
returns of excess contributions from employee benefit plans; distributions from
employee benefit plans, including those due to termination or plan transfer;
redemptions initiated by the Fund due to an account falling below the minimum
specified account size; redemptions following the death of the shareholder or
beneficial owner; and redemptions through a Systematic Withdrawal Plan set up
for shares prior to February 1, 1995, and for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net asset value (3%
quarterly, 6% semiannually or 12% annually). For example, if a Class I account
maintained an annual balance of $1,000,000, only $120,000 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge. Any amount over
that $120,000 would be assessed a 1% contingent deferred sales charge. Likewise,
if a Class II account maintained an annual balance of $10,000, only $1,200 could
be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
Retirement Plan Accounts
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 591/2, unless the distribution meets one of the exceptions
set forth in the Code.
Other Information
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
Telephone Transactions
- --------------------------------------------------------------------------------
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
How Are Fund Shares Valued?
- --------------------------------------------------------------------------------
The net asset value per share of each class of the Fund is determined as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day that
the Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price).
The net asset value per share of each class is determined by deducting the
aggregate gross value of all liabilities of each class from the aggregate gross
value of all assets of each class, and then dividing the difference by the
number of shares of the class outstanding. Assets in the Fund's portfolio are
valued as described under "How Are Fund Shares Valued?" in the SAI.
Each class will bear, pro rata, all of the common expenses of the Fund, except
that each class will bear the Rule 12b-1 fees payable under its respective plan.
The net asset value of all outstanding shares of each class of the Fund will be
computed on a pro rata basis based on the proportionate participation in the
Fund represented by the value of shares of such class. Due to the specific
distribution expenses and other costs that will be allocable to each class, the
dividends paid to each class of the Fund may vary.
How Do I Get More Information
About My Investment?
- --------------------------------------------------------------------------------
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access an automated system (day or night) which
offers the following features. By calling the Franklin TeleFACTS(R) system at
1-800/247-1753, you may obtain Class I and Class II account information, current
price and, if available, yield or other performance information specific to the
Fund or any Franklin Templeton Fund. In addition, Class I shareholders may
process an exchange, within the same class, into an identically registered
Franklin account, and request duplicate confirmation or year-end statements, and
deposit slips.
Class I and Class II share codes for the Fund, which will be needed to access
system information are 158 and 258, respectively. The system's automated
operator will prompt you with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided. The same numbers may be used when calling
from a rotary phone.
Hours of Operation (Pacific Time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
How Does the Fund Measure Performance?
- --------------------------------------------------------------------------------
Advertisements, sales literature and communications to you may contain several
measures of a class' performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price for one-, five- and ten-year periods, or portion thereof,
to the extent applicable, through the end of the most recent calendar quarter,
assuming reinvestment of all distributions. The Fund may also furnish total
return quotations for each class for other periods or based on investments at
various sales charge levels or at net asset value. For such purposes, total
return equals the total of all income and capital gain paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the change in the
value of the original investment, expressed as a percentage of the purchase
price.
Current yield for each class reflects the income per share earned by the Fund's
portfolio investments. It is calculated for each class by dividing that class'
net investment income per share during a recent 30-day period by the maximum
public offering price for that class of shares on the last day of that period
and annualizing the result.
Current yield for each class, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of a class are
reflected in the current distribution rate, which may be quoted to you. The
current distribution rate is computed by dividing the total amount of dividends
per share paid by a class during the past 12 months by a current maximum
offering price for that class of shares. Under certain circumstances, such as
when there has been a change in the amount of dividend payout or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect, rather than using
the dividends during the past 12 months. The current distribution rate differs
from the current yield computation because it may include distributions to
shareholders from sources other than dividends and interest, such as short-term
capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against a class' income and will assume the payment of the
maximum sales charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical performance figures
will be restated to reflect the new rate. The investment results of each class,
like all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what a class' total return, current yield, or distribution rate may be
in any future period.
General Information
- --------------------------------------------------------------------------------
Reports to Shareholders
The Fund's fiscal year ends September 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Trust at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
Organization and Voting Rights
The Trust's name was changed from L.F. Rothschild Managed Trust to Franklin
Managed Trust on June 28, 1988. The Agreement and Declaration of Trust permits
the trustees to issue an unlimited number of shares of beneficial interest of
$.01 par value, which may be issued in any number of series and classes. Shares
issued will have no preemptive or conversion rights. Shares of each series have
equal rights as to dividends and distributions as declared by such series and
the net assets of such series upon liquidation or dissolution. Additional series
may be added in the future by the Board.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as the other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only shareholders of that
class will be entitled to vote. Therefore each class of shares will vote
separately on matters (1) affecting only that class, (2) expressly required to
be voted on separately by class by state business trust law, or (3) required to
be voted on separately by class by the 1940 Act, or the rules adopted
thereunder. For instance, if a change to the Rule 12b-1 plan relating to Class I
shares requires shareholder approval, only shareholders of Class I may vote on
the change to the Rule 12b-1 plan affecting that class. Similarly, if a change
to the Rule 12b-1 plan relating to Class II shares requires approval, only
shareholders of Class II may vote on changes to such plan. On the other hand, if
there is a proposed change to the investment objective of the Fund, the proposal
would affect all shareholders, regardless of which class of shares they hold
and, therefore, each share has the same voting rights.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees if
they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholders meetings. The Trust may,
however, hold a special shareholders meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
Redemptions by the Fund
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
Registering Your Account
- --------------------------------------------------------------------------------
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
- --------------------------------------------------------------------------------
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
Useful Terms and Definitions
in this Prospectus
- --------------------------------------------------------------------------------
1940 Act - Investment Company Act of 1940, as amended.
Advisers - Franklin Advisers, Inc., the Fund's investment manager.
Board - The Board of Trustees of the Trust.
Code - Internal Revenue Code of 1986, as amended.
Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13-month period. Distributors
determines the qualifications for Designated Retirement Plans.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Exchange - New York Stock Exchange.
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
Net asset value (NAV) - the value of a mutual fund determined by deducting the
fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share for the applicable class next calculated after we receive your
request in proper form.
Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
Offering price - The public offering price is equal to the net asset value of
the class plus the front-end sales charge. The front-end sales charge is 4.50%
for Class I shares and 1% for Class II shares.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
Securities Dealer - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
Trust Company - Franklin Templeton Trust Company.
FRANKLIN
CORPORATE QUALIFIED
DIVIDEND FUND
Franklin Managed Trust
PROSPECTUS February 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Managed Trust (the "Trust") is an open-end management investment
company consisting of three separate series. This Prospectus pertains only to
the Franklin Corporate Qualified Dividend Fund (the "Fund"), formerly the
Franklin Corporate Cash Portfolio, a diversified series of the Trust.
The Fund is designed exclusively to serve as an income producing vehicle for the
cash reserves of taxable corporations. The objective of the Fund is to generate
high after-tax income for corporations, consistent with investment in investment
quality securities. To achieve its objective, the Fund invests primarily in the
equity securities of domestic corporations that generate dividend income
qualifying for the 70% corporate dividends-received deduction under current
federal income tax laws.
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful to have.
An SAIconcerning the Fund, dated February 1, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table............................................ 2
Financial Highlights -
How Has the Fund Performed?............................. 4
What Is the Franklin Corporate
Qualified Dividend Fund?................................ 4
How Does the Fund Invest Its Assets?..................... 5
What Are the Fund's Special Considerations?............. 7
How You Participate in the Results of the
Fund's Activities....................................... 8
Who Manages the Fund?.................................... 8
What Distributions Might I Receive
from the Fund?.......................................... 10
How Taxation Affects You and the Fund.................... 11
How Do I Buy Shares?..................................... 12
What Programs and Privileges
Are Available to Me as a Shareholder?................... 15
What If My Investment Outlook Changes? -
Exchange Privilege...................................... 17
How Do I Sell Shares?.................................... 20
Telephone Transactions................................... 24
How Are Fund Shares Valued?.............................. 24
How Do I Get More Information
About My Investment?.................................... 25
How Does the Fund Measure Performance?................... 25
General Information...................................... 26
Registering Your Account................................. 27
Useful Terms and Definitions............................. 28
Expense Table
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended September 30, 1995.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)......... 1.50%
Deferred Sales Charge........................ NONE+
Exchange Fee (per transaction)............... $5.00*
+Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month following such investments. See "How Do I Sell Shares? - Contingent
Deferred Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................................. 0.50%
Rule 12b-1 Fees............................................. 0.22%**
Other Expenses:
Accounting Fees................................. 0.14%
Registration Fees............................... 0.04%
Other........................................... 0.12%
Total Other Expenses........................................ 0.30%
Total Fund Operating Expenses............................... 1.02%
**The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.25%. Consistent with National Association of Securities
Dealers, Inc.'s rules, it is possible that the combination of front-end sales
charges and Rule 12b-1 fees could cause long-term shareholders to pay more than
the economic equivalent of the maximum front-end sales charges permitted under
those same rules. Given the Fund's maximum front-end sales charge and the rate
of the Fund's Rule 12b-1 fee, however, it is estimated that this would take a
substantial number of years.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
One Year Three Years Five Years Ten Years
$25* $47 $70 $138
*Assumes that a contingent deferred sales charge will not apply.
This example is based on the aggregate annual operating expenses shown above and
should not be considered a representation of past or future expenses, which may
be more or less than those shown. The operating expenses are borne by the Fund
and only indirectly by you as a result of your investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
Financial Highlights - How Has the Fund Performed?
Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through each of
the fiscal years ended December 31, 1992, for the nine-month period ended
September 30, 1993 (annualized as a result of a change in fiscal year end from
December to September) and for the fiscal years ended September 30, 1994 and
1995. The information for each of the fiscal periods from January 1, 1991 to
September 30, 1995, has been audited by Tait, Weller and Baker, independent
auditors, whose audit report appears in the financial statements in the Trust's
Annual Report to Shareholders dated September 30, 1995. The remaining figures,
which are also audited, are not covered by the auditors' current report. See
"Reports to Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Asset Net Realized Distributions Net Asset Net Assets Ratio of Ratio of
Value at Net & Unrealized Total From From Net Value at End Expenses Net Income Portfolio
Year Beginning Investment Gain (Loss) Investment Investment at End Total of Year to Average to Average Turnover
Ended of Year Income on SecuritiesOperations Income of Year Return+ (In 000's) Net Assets Net Assets Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987** $25.00 $1.68 $(3.460) $(1.780) $(1.450) $21.77 (7.41)% $14,134 1.34%* 7.94%* 149.17%
1988++ 21.77 1.84 (0.650) 1.190 (1.850) 21.11 5.68 30,632 1.46 8.51 8.00
1989 21.11 1.76 (0.434) 1.326 (1.786) 20.65 6.42 23,260 1.43 8.31 14.42
1990 20.65 1.77 (1.566) 0.204 (1.824) 19.03 1.05 17,498 1.33 8.84 1.55
1991 19.03 1.73 2.540 4.270 (1.670) 21.63 23.25 22,242 1.24 8.09 -
1992 21.63 1.37 2.144 3.514 (1.394) 23.75 16.57 29,444 1.10 5.97 29.01
1993*** 23.75 0.73 0.777 1.507 (0.787) 24.47 6.44 33,849 1.06* 4.09* 27.46
1994 24.47 1.02 (0.844) 0.176 (0.956) 23.69 .72 31,790 1.00 4.19 32.17
1995 23.69 1.21 - 1.210 (1.140) 23.76 5.26 27,793 1.02 5.02 29.18
</TABLE>
*Annualized
**For the period January 14, 1987 (effective date of registration) to December
31, 1987.
***For the period ended September 30, 1993.
+Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum front-end sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.
++On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Advisers.
WHAT IS THE FRANKLIN CORPORATE QUALIFIED DIVIDEND FUND?
The Fund is a diversified series of the Trust, an open-end management investment
company, commonly called a "mutual fund." The Trust was organized as a
Massachusetts business trust in July 1986 and registered with the SEC under the
1940 Act. The Fund changed its name from the Franklin Corporate Cash Portfolio,
effective May 1, 1991. Shares of the Fund may be considered Class I shares, as
described under "Useful Terms and Definitions in this Prospectus," for
redemption, exchange and other purposes.
You may purchase shares of the Fund (minimum investment of $25,000 initially and
$5,000 thereafter) at the current public offering price. Please see "How Do I
Buy Shares?" Shares of the Fund are available for purchase only by corporations.
How Does the Fund Invest Its Assets?
The Fund is designed to serve as an income producing vehicle for the cash
reserves of taxable corporations. The objective of the Fund is to generate high
after-tax income for corporations, consistent with investment in investment
quality securities. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval.
The Fund seeks to achieve its objective by maximizing the amount of dividend
income it receives that qualifies for the 70% corporate dividends-received
deduction under current federal income tax laws.
Types of Securities the Fund May Purchase
Under normal market conditions, at least 75% of the Fund's total assets will be
invested in equity securities of domestic corporations paying dividends that
qualify for the dividends-received deduction. The types of securities in which
the Fund typically invests include adjustable rate preferred stocks, auction
rate preferred stocks, conventional preferred stocks, and common stocks.
Because the Fund seeks income consistent with investment in investment quality
securities, under normal market conditions at least 95% of the Fund's portfolio
is invested in equity securities of issuers whose long-term debt securities are
either rated in one of the four highest rating categories (described below) or,
if unrated, are of comparable quality as determined by the Manager. The common
stocks that the Fund purchases are generally not rated and ratings on the
issuers' preferred or debt securities should not be construed as a rating on the
issuers' common stocks. The four highest rating categories are AAA, AA, A or BBB
by Standard & Poor's Corporation ("S&P"), or Aaa, Aa, A, or Baa by Moody's
Investors Service ("Moody's"). Debt securities within the top three categories
(AAA, AA and A by S&P or Aaa, Aa or A by Moody's) comprise what are known as
high-grade bonds and are regarded as having a strong capacity to pay principal
and interest. Medium-grade bonds (BBB by S&P or Baa by Moody's) are regarded as
having an adequate capacity to pay principal and interest but with greater
vulnerability to adverse economic conditions and some speculative
characteristics. See "Appendix" in the SAI for a further description of these
ratings.
Although there is no assurance that the Fund will achieve its objective due to
the market risks inherent in any investment program, the Manager believes that
such risks may be minimized through careful analysis of prospective issuers.
Thus, while the opinion of rating services may be considered in selecting
securities for the Fund's portfolio, the Manager relies primarily on its own
credit analysis, which includes a study of the existing debt, capital structure,
ability to service debt and to pay dividends, and the credit rating and current
trend of earnings for any company under consideration.
Adjustable Rate and Auction Rate Preferred Stocks.The Fund may invest a portion
of its portfolio in adjustable rate and auction rate preferred stocks, the
dividends on which qualify for the dividends-received deduction.
Adjustable rate stocks are preferred stocks with cumulative and adjustable
dividends. Regardless of the issuer, these stocks generally have the same terms
and provisions, except for the specific adjustment formula used to determine
their quarterly dividend rate. These formulas vary in regard to (i) the fixed
amount of premium or discount in relation to a particular U.S. Treasury
instrument rate and (ii) the minimum and maximum range within which the dividend
rate may fluctuate. The applicable rate is generally determined by the issuer at
the beginning of each quarterly dividend period by adding or subtracting
(depending upon the terms of the issue) either a fixed number of basis points or
a percentage calculation to the highest of three specified rates: a "Treasury
Bill Rate," a "Ten-Year Constant Maturity Rate" and a "Twenty-Year Constant
Maturity Rate." Auction rate stocks are similar to short-term, corporate money
market instruments in that the auction rate preferred stockholder normally has
the opportunity to liquidate at par every 49 days, at which time the dividend
rate is reset. Generally, the maximum dividend rate ranges from 110% to 250%,
depending on quality, of the sixty-day "AA" Composite Commercial Paper Rate and
the minimum rate is 56% of the same rate. The maximum and minimum dividend rates
may be higher or lower depending upon the particular issuer.
While the Fund intends to invest only in adjustable rate and auction rate
preferred stocks that are represented by the issuer or its counsel, or are
considered in the best judgment of the Fund's management to be equity securities
for purposes of the dividends-received deduction, there is the possibility that
some of these stocks may be classified as debt securities with the result that
the dividends paid on these securities would not be qualifying dividends.
Other Investment Policies of the Fund
Short-Term Investments. In any period of stock market weakness or uncertain
market or economic conditions as determined by the Manager, the Fund may
establish a defensive position to preserve capital by temporarily investing all
or a part of its assets in short-term, fixed-income securities or retaining such
assets in cash or cash equivalents. Such investments, which may also be made on
a temporary basis pending investment in equity securities, would include U.S.
government securities, bank certificates of deposit, bankers' acceptances,
high-quality commercial paper issued by domestic corporations and repurchase
transactions.
Repurchase Transactions. The Fund may engage in repurchase transactions in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked to market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Manager. A repurchase agreement is deemed to be a loan by the Fund under the
1940 Act. The U.S. government security subject to resale (the collateral) will
be held on behalf of the Fund by a custodian approved by the Board and will be
held pursuant to a written agreement.
Loans of Portfolio Securities. Consistent with procedures approved by Board, the
Fund may lend its portfolio securities to qualified securities dealers or other
institutional investors. Although permitted to lend up to 30% of its total
assets, the Fund currently intends to limit its lending of securities to no more
than 5% of its total assets. For a description of the Fund's securities lending
procedures, please see the SAI.
Borrowing. The Fund may borrow money only from banks for temporary or emergency
purposes in amounts not to exceed 15% of the Fund's total assets. Additional
investments may not be made while any such borrowings are in excess of 5% of the
Fund's total assets.
To the extent interest income is derived from the above activities, it will not
qualify for the corporate dividends-received deduction.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) or restricted securities may not constitute, at the time of
purchase, more than 10% of the value of the total net assets of the Fund.
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see "How Does the Fund Invest
Its Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S SPECIAL CONSIDERATIONS?
As discussed under "How Taxation Affects You and the Fund," in order for 100% of
the dividend income paid by the Fund to qualify for the corporate 70%
dividends-received deduction, 100% of the Fund's net distributable income must
be derived from qualifying dividends received from the Fund's stock in domestic
corporations with respect to which the Fund satisfies certain requirements of
federal tax laws. If the aggregate qualifying dividends received by the Fund are
less than 100% of its net distributable income, then the amount of the Fund's
dividends paid to its shareholders that will be eligible for the deduction will
also be proportionately less. While the Fund intends to maximize the amount of
qualifying dividend income it receives, consistent with its investment
objective, it is possible that less than 100% of the Fund's net distributable
income in any year will consist of qualifying dividend income to you.
To be eligible for the 70% dividends-received deduction on any dividend paid by
the Fund, you must also satisfy certain federal tax requirements discussed under
"How Taxation Affects You and the Fund."
If you are in the 35% regular tax bracket, the effect of the tax deduction is
that 89.5% of the Fund's qualifying dividends will be retained as after-tax
income. On an after-tax basis, the Fund's qualifying dividends would likely give
you a significantly higher return than investments in taxable money market
instruments, as illustrated in the following chart. There is no assurance, of
course, that any of these results will be attained, that federal income tax laws
applicable to the dividends-received deduction will remain the same or that such
deduction may not be modified in the future.
The following chart compares the net after-tax yields for a fully taxable
investment and the Fund, assuming the maximum 1995 federal corporate income tax
rate of 35% and that 100% of the Fund's dividends qualify for the current 70%
dividends-received deduction.
The foregoing chart is for illustrative purposes only, based on current
applicable federal corporate income tax rates, and no representation is being
made of the Fund's actual or intended yield or the percentage of its dividends
which will in fact qualify for the dividends-received deduction. In addition,
the net asset value of the Fund will fluctuate and you may realize a gain or
loss on redemption. For more information see "How Does Taxation Affect You and
the Fund?"
HOW YOU PARTICIPATE IN THE
RESULTS OF THE FUND'S ACTIVITIES
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity market.
A decline in the market, expressed for example by a drop in the Dow Jones
Industrials, the Standard and Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both decreases and increases in the valuation of the market, and these
may reoccur unpredictably in the future.
WHO MANAGES THE FUND?
The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
The Manager is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders of
which are Charles B. Johnson and Rupert H. Johnson, Jr., who own approximately
20% and 16%, respectively, of Resources' outstanding shares. Franklin Templeton
Group is engaged in various aspects of the financial services industry. Advisers
acts as investment manager or administrator to 36 U.S. registered investment
companies (118 separate series) with aggregate assets of over $80 billion.
The team responsible for the day-to-day management of the Fund's portfolio is:
William Lippman and Philip Smith since inception, under management of L.F.
Rothschild Fund Management, and Margaret McGee since 1988.
William Lippman
Senior Vice President of Advisers
Mr. Lippman holds a Master of Business Administration degree from New York
University and a Bachelor of business administration degree from City College of
New York. Mr. Lippman has been in the securities industry for over 30 years and
with Advisers or an affiliate since 1988.
Philip Smith
Portfolio Manager of Advisers
Mr. Smith holds a Doctor of Jurisprudence degree from Yale Law School and a
Bachelor of Arts degree from Princeton University. He has been in the securities
industry since 1964 and with Advisers or an affiliate since 1988.
Margaret McGee
Portfolio Manager of Advisers
Ms. McGee holds a Bachelor of Arts degree in business administration from
William Paterson College. She has been in the securities industry since 1985 and
with Advisers or an affiliate since 1988.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Fund's
Code of Ethics.
During the fiscal year ended September 30, 1995, management fees totaling 0.50%
of the average daily net assets of the Fund were paid to Advisers.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended September 30, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.02% of the
average daily net assets of the Fund.
Plan of Distribution
A plan of distribution has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a monthly basis. All expenses of distribution in excess of 0.25% per
annum will be borne by Distributors, or others who have incurred them, without
reimbursement from the Fund.
The Plan also covers any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund.
WHAT DISTRIBUTIONS MIGHT
I RECEIVE FROM THE FUND?
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. These
distributions, when made, will generally be fully taxable to the Fund's
shareholders. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
Distribution Date
Although subject to change by the Board without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends monthly
for shareholders of record on the last business day of the month, payable on or
about the 15th day of the following month. The amount of income dividend
payments by the Fund is dependent upon the amount of net income received by the
Fund from its portfolio holdings, is not guaranteed and is subject to the
discretion of the Board. Fund shares are quoted ex-dividend on the first
business day following the record date. The Fund does not pay "interest" or
guarantee any fixed rate of return on an investment in its shares.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
Distribution Options
You may choose to receive your distributions from the Fund in any of these ways:
1. Purchase additional shares of the Fund - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another party, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
To select one of these options, please complete sections 4 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the Fund. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Fund will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends you receive from the Fund,
as well as any distributions derived from the excess of net short-term capital
gain over net long-term capital loss, are treated as ordinary income whether you
elect to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to Fund
shareholders until the following January, will be treated for tax purposes as if
paid by the Fund and received by you on December 31 of the calendar year in
which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or a loss. Any loss incurred on the sale or exchange of Fund
shares, held for six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to such shares.
For the fiscal year ended September 30, 1995, 100% of the income dividends paid
by the Fund qualified for the corporate dividends-received deduction, subject to
certain holding period and debt financing restrictions imposed under the Code.
You should note that dividends paid by the Fund from sources other than the
qualifying dividends it receives will not qualify for the dividends-received
deduction. For example, any interest income and net short-term capital gain (in
excess of any net long-term capital loss or capital loss carryover) included in
investment company taxable income and distributed by the Fund as a dividend will
not qualify for the dividends-received deduction.
You should also note that availability of the corporate dividends-received
deduction is subject to certain restrictions. For example, the deduction is
eliminated unless the Fund shares have been held (or deemed held) for at least
46 days in a substantially unhedged manner. The dividends-received deduction may
also be reduced to the extent interest paid or accrued by you is directly
attributable to your investment in Fund shares. The entire dividend, including
the portion which is treated as a deduction, is includable in the tax base on
which the federal alternative minimum tax is computed and may also result in a
reduction in your tax basis in Fund shares, under certain circumstances, if the
shares have been held for less than two years. If your investment in the Fund is
"debt financed" for these tax purposes you should consult with your tax advisor
concerning the availability of the dividends-received deduction.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received from the Fund and the
application of foreign tax laws to these distributions.
You should consult your tax advisor with respect to the applicability of state
and local intangible property or income taxes to your shares in the Fund and to
distributions and redemption proceeds received from the Fund.
HOW DO I BUY SHARES?
You may buy shares to open a Fund account with a minimum investment of $25,000
and make additional investments at any time in amounts of $5,000 or more. To
open your account, contact your investment representative or complete and sign
the enclosed Shareholder Application and return it to the Fund with your check.
Purchase Price of Fund Shares
You may buy shares at the public offering price. The public offering price is
equal to the net asset value plus the 1.5% sales charge, unless you qualify to
purchase shares at a discount or without a sales charge as discussed below. The
offering price will be calculated to two decimal places using standard rounding
criteria.
Quantity Discounts in Sales Charges
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the following table.
<TABLE>
<CAPTION>
Total Sales Charge
As a Percentage of Amount Allowed to
Net Amount Dealer as a Percentage
Size of Transaction at Offering Price Offering Price Invested of Offering Price*
<S> <C> <C> <C>
Less than $500,000.................... 1.50% 1.52% 1.50%
$500,000 but less than $1,000,000..... 1.00% 1.01% 1.00%
$1,000,000 or more.................... None** None None***
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. A securities dealer who receives
90% or more of the sales commission may be deemed an underwriter under the
Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of commissions Distributors may pay to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds to the amount of your current
purchase. To receive the reduction, you or your investment representative must
notify Distributors that your investment qualifies for a discount.
Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
By completing the Letter of Intent section of the Shareholder Application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your corporate name.
o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.
o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
o Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Purchases at Net Asset Value
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. When you return the distribution, please include a written request to
reinvest the money at net asset value. You may reinvest Class II distributions
in either Class I or Class II shares, but Class I distributions may only be
invested in Class I shares under this privilege. For more information, see
"Distribution Options" under "What Distributions Might I Receive From the Fund?"
or call Shareholder Services at 1-800/632-2301; or
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money in writing to the Fund within 365 days of the redemption date. You
may reinvest up to the total amount of the redemption proceeds under this
privilege. If a different class of shares is purchased, the full front-end sales
charge must be paid at the time of purchase of the new shares. While you will
receive credit for any contingent deferred sales charge paid on the shares
redeemed, a new contingency period will begin. Shares that were no longer
subject to a contingent deferred sales charge will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge. Shares
exchanged into other Franklin Templeton Funds are not considered "redeemed" for
this privilege (see "What If My Investment Outlook Changes? - Exchange
Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) Accounts that were opened in Franklin Corporate Cash Management Fund prior
to January 1, 1989;
(ii) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(iii) accounts managed by the Franklin Templeton Group;
(iv) certain unit investment trusts and unit holders of these trusts reinvesting
distributions from the trusts in the Fund;
(v) registered securities dealers and their affiliates, for their investment
accounts only;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program); and
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
General
The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
If the purchase or sale of Fund shares with the assistance of certain banks, as
described herein, were deemed to be an impermissible activity for such bank(s)
under the Glass-Steagall Act, or other federal laws, such activities would be
discontinued by such bank(s). Investors utilizing such bank assistance would
then be able to seek other avenues to invest in Fund shares, such as securities
dealers registered with the SEC.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months for
purposes of additional purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the United States. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation if prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Fund who are affiliated with Distributors. See "Officers and
Trustees."
WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?
Certain of the programs and privileges described in this section may not be
available directly from the Fund if your shares are held, of record, by a
financial institution or in a "street name" account or networked account through
the National Securities Clearing Corporation ("NSCC") (see "Registering Your
Account" in this Prospectus).
Share Certificates
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or by your securities dealer.
Confirmations
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
Automatic Investment Plan
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another party, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
Plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend a payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn.
Electronic Fund Transfers
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
WHAT IF MY INVESTMENT OUTLOOK CHANGES? - EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
By Telephone
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not
wish this privilege extended to a particular account, you should notify the Fund
or Investor Services.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Timing Accounts
Accounts which are administered by allocation or market timing services to
exchange shares based on predetermined market indicators ("Timing Accounts")
will be charged a $5.00 administrative service fee per each such exchange. All
other exchanges are without charge.
Restrictions on Exchanges
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated under "How Do I Buy Shares?", reserve
the right to refuse any order for the purchase of shares.
HOW DO I SELL SHARES?
You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may redeem shares in any of the following ways:
By Check
The Fund will supply you with redemption drafts (which are similar to checks and
are referred to as checks throughout this Prospectus) if you have requested them
on the Shareholder Application. The election of the check redemption procedure
does not create a checking account or other bank account relationship between
you and the Fund or any bank. These checks are drawn through the Fund's
custodian, Bank of America NT & SA (the "Custodian" or "Bank"). You will
generally not be able to convert a check drawn on the Fund account into a
certified or cashier's check by presentation at the Fund's Custodian. You may
make checks payable to the order of any person in any amount not less than $100,
provided the amount of the check is for not more than 98% of the value of your
account. There is no charge for this check redemption procedure.
When a redemption check is presented for payment, the Fund will redeem a
sufficient number of full and fractional shares from your account to cover the
amount of the check. Shares will be redeemed at their net asset value next
determined after receipt of a check which does not exceed 98% of the net asset
value of the account. This redemption procedure will be permitted only if you
have an account in which no share certificates have been issued.
Because the Fund is not a bank, no assurance can be given that stop payment
orders on checks you have written will be effective. The Fund, however, will use
its best efforts to see that such orders are carried out.
You will be subject to the right of the Custodian to return a redemption check
unpaid (marked "insufficient funds") if the amount exceeds 98% of the net asset
value of your account at the time the check is presented for payment. This is
required since the aggregate value of an account may change and cannot
accurately be determined in advance. Therefore, redemption checks should not be
used to close a Fund account. The Bank or the Fund reserves the right to
terminate this service at any time upon notice to shareholders.
By Mail
Send a written request signed by all registered owners to Investor Services, at
the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
To be considered in proper form, signatures must be guaranteed if the redemption
request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of an account cannot be confirmed, (b)
the Fund has been notified of an adverse claim, (c) the instructions received by
the Fund are given by an agent, not the actual registered owner, or (d) the
authority of a representative of a corporation, partnership, association, or
other entity has not been established to the satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporations also require a signature guaranteed letter
of instruction from the authorized officers of the corporation and a corporate
resolution.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
By Telephone
Payment of redemption requests of up to $1,000 (once per business day) will be
sent by mail to your address as reflected on the Fund's records. For payments
over $1,000, you must first complete the "Wire Redemptions Privilege" section of
the Shareholder Application. Proceeds will then be wired directly to the
commercial bank or brokerage firm designated by you. Wires will not be sent for
redemption requests of $1,000 or less. If you have completed the Franklin
Templeton Telephone Redemption Authorization Agreement (the "Agreement"),
included with this Prospectus, you may have redemption proceeds of over $1,000,
up to $50,000 per day per account, sent directly to your address of record. No
redemptions will be processed on shares for which certificates have been issued.
You may obtain additional information about telephone redemptions by writing to
the Fund or Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
Telephone redemption requests received before the scheduled close of the
Exchange (generally 1:00 p.m. Pacific time) on any business day will be
processed that same day. The redemption check will be sent within seven days,
made payable to all the registered owners on the account, and will be sent only
to the address of record. Wire payments will be transmitted the next business
day following receipt prior to the scheduled close of the Exchange of the
request for redemption in proper form. You may wish to allow for longer
processing time if you need funds available at a specific time for a specific
transaction.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus.
Redeeming Shares Through Securities Dealers
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances. In determining
whether a contingent deferred sales charge applies, shares not subject to a
contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: exchanges;
any account fees; redemptions initiated by the Fund due to an account falling
below the minimum specified account size; and redemptions through a Systematic
Withdrawal Plan set up for shares prior to February 1, 1995, and for Systematic
Withdrawal Plans set up thereafter, redemptions of up to 1% monthly of an
account's net asset value (3% quarterly, 6% semiannually or 12% annually). For
example, if an account maintained an annual balance of $1,000,000, only $120,000
could be withdrawn through a once-yearly Systematic Withdrawal Plan free of
charge. Any amount over that $120,000 would be assessed a 1% contingent deferred
sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
Other Information
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Your securities dealer may call
Franklin's Dealer Services Department.
TELEPHONE TRANSACTIONS
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option, (iii) transfer Fund shares in one account to another
identically registered account in the Fund, (iv) request the issuance of
certificates (to be sent to the address of record only) and (v) exchange Fund
shares as described in this Prospectus by telephone. In addition, if you
complete and file an Agreement as described under "How Do I Sell Shares? - By
Telephone" you will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
HOW ARE FUND SHARES VALUED?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum front-end sales charge of the Fund).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access an automated system (day or night) which
offers the following features.
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, you may obtain
account information, current price and, if available, yield or other performance
information specific to the Fund or any Franklin Templeton Fund. In addition,
you may process an exchange, within the same class, into an identically
registered Franklin account and request duplicate confirmation or year-end
statements and deposit slips.
The Fund code, which will be needed to access system information, is 17 followed
by the # sign. The system's automated operator will prompt you with easy to
follow step-by-step instructions from the main menu. Other features may be added
in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided. The same numbers may be used when calling
from a rotary phone.
Hours of Operation
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-0637 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
HOW DOES THE FUND MEASURE PERFORMANCE?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return, tax equivalent yield, taxable equivalent and current
distribution rate. They may also occasionally cite statistics to reflect the
Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result. A tax equivalent yield
demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to the Fund's current yield.
Current yield and tax equivalent yield for the Fund, which are calculated
according to a formula prescribed by the SEC (see "General Information" in the
SAI), are not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
of the Fund are reflected in the current distribution rate or taxable equivalent
distribution rate, which may be quoted to you. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past 12 months by the current maximum offering price. A taxable
equivalent distribution rate demonstrates the taxable distribution rate
necessary to produce an after-tax distribution rate equivalent to the Fund's
distribution rate. Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as short-term capital gain, and is
calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's current yield, tax-equivalent yield or distribution rate may be in
any future period.
GENERAL INFORMATION
Reports to Shareholders
The Fund's fiscal year ends September 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. You may obtain additional copies, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and under "General Information" in the SAI.
Organization and Voting Rights
The Trust's name was changed from L.F. Rothschild Managed Trust to Franklin
Managed Trust on June 28, 1988. The Agreement and Declaration of Trust permits
the trustees to issue an unlimited number of full and fractional shares of
beneficial interest of $.01 par value, which may be issued in any number of
series and classes. Shares issued will have no preemptive or conversion rights.
Shares of each series have equal rights as to dividends and distributions as
declared by such series and the net assets of such series upon liquidation or
dissolution. Additional series or classes may be added in the future by the
Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees if
they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholders meetings. The Trust may,
however, hold a special shareholders meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
On December 31, 1988, the Fund acquired all of the net assets of Franklin
Corporate Cash Management Fund ("Management Fund") pursuant to an Agreement and
Plan of Reorganization which was approved by the shareholders of Management Fund
on December 7, 1988.
Redemptions by the Fund
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $12,500, but only where the value of your
account has been reduced by your prior voluntary redemption of shares and has
been inactive (except for the reinvestment of distributions) for a period of at
least six months, provided you are given advance notice. For more information,
see "How Do I Buy and Sell Shares?" in the SAI.
Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
REGISTERING YOUR ACCOUNT
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended.
Advisers - Franklin Advisers, Inc., the Fund's investment manager.
Board - The Board of Trustees of the Trust.
Class I and Class II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
Code - Internal Revenue Code of 1986, as amended.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Exchange - New York Stock Exchange.
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
Net asset value per share (NAV) - the value of a mutual fund share determined by
deducting the fund's liabilities from the total assets of the portfolio and
dividing this by the number of shares outstanding. When you buy, sell or
exchange shares, we will use the NAV next calculated after we receive your
request in proper form.
Offering price - The public offering price is equal to the net asset value plus
the 1.5% sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
SEC - Securities and Exchange Commission.
Securities Dealer - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
FRANKLIN
INVESTMENT GRADE
INCOME FUND
FRANKLIN MANAGED TRUST
PROSPECTUS February 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Managed Trust (the "Trust") is an open-end management investment
company consisting of three separate series. This Prospectus pertains only to
the Franklin Investment Grade Income Fund (the "Fund"), a diversified series of
the Trust.
The objective of the Fund is to seek a maximum level of income consistent with
prudent exposure to risk. The Fund intends to achieve its objective through a
diversified investment in debt securities and dividend paying common and
preferred stocks. Under normal market conditions, at least 75% of the Fund's
assets will be held in investment grade issues. The Fund may invest in domestic
and foreign securities as described under "How Does the Fund Invest Its Assets?"
This Prospectus is intended to set forth in a clear and concise manner
information about the Fund that you should know before investing. After reading
the Prospectus, you should retain it for future reference; it contains
information about the purchase and sale of shares and other items which you will
find useful to have.
An SAI concerning the Trust, dated February 1, 1996, as may be amended from time
to time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors at the address or telephone number shown above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this Prospectus. Further
information may be obtained from the underwriter.
Contents Page
Expense Table 2
Financial Highlights -
How Has the Fund Performed? 4
What Is the Franklin Managed Trust? 4
How Does the Fund Invest Its Assets? 4
What Are the Fund's Potential Risks? 9
How You Participate in the Results of
the Fund's Activities 11
Who Manages the Fund? 11
What Distributions Might
I Receive from the Fund? 13
How Taxation Affects You and the Fund 14
How Do I Buy Shares? 15
What Programs and Privileges
Are Available to Me as a Shareholder? 20
What If My Investment Outlook Changes? -
Exchange Privilege 22
How Do I Sell Shares? 24
Telephone Transactions 28
How Are Fund Shares Valued? 29
How Do I Get More Information
About My Investment? 29
How Does the Fund
Measure Performance? 30
General Information 31
Registering Your Account 32
Important Notice Regarding
Taxpayer IRS Certifications 33
Useful Terms and Definitions 33
Expense Table
The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the aggregate operating
expenses of the Fund for the fiscal year ended September 30, 1995.
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25%
Deferred Sales Charge NONE+
Exchange Fee (per transaction) $5.00*
+Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month of such investments. See "How Do I Sell Shares? - Contingent Deferred
Sales Charge."
*$5.00 fee imposed only on Timing Accounts as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.50%
Rule 12b-1 Fees 0.21%**
Other Expenses:
Accounting Fees 0.14%
Reports to Shareholders 0.08%
Other 0.16%
------
Total Other Expenses 0.38%
------
Total Fund Operating Expenses 1.09%
------
**The maximum amount of Rule 12b-1 fees allowed pursuant to the Fund's
distribution plan is 0.25%. See "Who Manages the Fund? - Plan of Distribution."
Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.
You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you should refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period.
One Year Three Years Five Years Ten Years
$53* $76 $100 $170
*Assumes that a contingent deferred sales charge will not apply.
This example is based on the aggregate annual operating expenses shown above and
should not be considered a representation of past or future expenses, which may
be more or less than those shown. The operating expenses are paid by the Fund
and are borne by you as a result of your investment in the Fund. In addition,
federal securities regulations require the example to assume an annual return of
5%, but the Fund's actual return may be more or less than 5%.
Financial Highlights - How Has the Fund Performed?
Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of the registration statement through each of
the fiscal years ended on or prior to December 31, 1992, for the nine month
period ended September 30, 1993 (annualized as a result of a change in fiscal
year end from December to September) and for the two fiscal years ended
September 30, 1994 and 1995. The information has been audited by Tait, Weller
and Baker, independent auditors, whose audit report for each of the fiscal
periods from January 1, 1991 to September 30, 1995 appears in the financial
statements in the Trust's Annual Report to Shareholders dated September 30,
1995. The remaining figures, which are also audited, are not covered by the
auditors' current report. See "Reports to Shareholders" under "General
Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Asset Net Realized Distributions Net Asset Net Assets Ratio of Ratio of
Value at Net & Unrealized Total From From Net Values at End Expenses Net Income Portfolio
Year Beginning InvestmentGain (Loss) Investment Investment at End Total of Year to Average to Average Turnover
Ended of Year Income on SecuritiesOperations Income of Year Return+ (In 000's) Net Assets Net Assets Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987** $10.00 $0.69 $(1.220) $(0.530) $(0.620) $8.85 (5.34)% $15,608 1.48%* 8.47%* 101.12%
1988++ 8.85 0.83 (0.210) 0.620 (0.810) 8.66 7.24 12,650 1.35 9.36 34.87
1989 8.66 0.78 (0.077) 0.703 (0.783) 8.58 8.5 17,143 1.62 9.74 56.72
1990 8.58 0.74 (0.174) 0.566 (0.746) 8.40 7.01 12,289 1.43 8.84 11.37
1991 8.40 0.69 0.635 1.325 (0.695) 9.03 16.57 21,773 1.26 8.36 28.31
1992 9.03 0.62 (0.086) 0.534 (0.634) 8.93 6.16 29,367 1.08 7.02 27.28
1993*** 8.93 0.38 0.402 0.782 (0.402) 9.31 8.94 35,970 1.09* 5.61* 53.19
1994 9.31 0.45 (0.544) (0.094) (0.396) 8.82 (1.02) 29,553 1.05 4.91 10.57
1995 8.82 0.44 0.259 0.699 (0.479) 9.04 8.21 29,824 1.09 4.96 64.70
</TABLE>
*Annualized
**For the period January 14, 1987 (effective date of registration) to December
31, 1987.
***For the period ended September 30, 1993.
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the contingent deferred sales charge. The total return for the Fund
also assumes reinvestment of dividends and capital gains, if any, at net asset
value.
++On June 28, 1988, the investment manager changed from L.F. Rothschild Fund
Management, Inc. to Franklin Advisers, Inc.
What Is the Franklin Managed Trust?
The Fund is a diversified series of the Trust, an open-end management investment
company commonly called a "mutual fund." The Trust was organized as a
Massachusetts business trust in July, 1986 and registered with the SEC under the
1940 Act. The Trust has three separate portfolios, and each portfolio is a
separate series of shares of beneficial interest. Shares of the Fund may be
considered Class I shares, as described under "Useful Terms and Definitions" for
redemption, exchange and other purposes.
You may purchase shares of the Fund (minimum investment of $100 initially and
$25 thereafter) at the current public offering price. Please see "How Do I Buy
Shares?"
How Does the Fund Invest Its Assets?
The objective of the Fund is to seek a maximum level of income consistent with
prudent exposure to risk. The objective is a fundamental policy of the Fund and
may not be changed without shareholder approval. Of course, there is no
assurance that the Fund's objective will be achieved. The Fund seeks to achieve
its objective by investing in a diversified portfolio of debt securities, most
of which will be intermediate-term investment grade issues and dividend-paying
common and preferred stocks. At times, particularly during periods when the
yield curve is positive, the Fund will endeavor to provide a higher yield than
that available from a money market mutual fund, while attempting to avoid the
potential risks to principal often associated with both non-investment grade
securities and longer-term instruments.
Types of Securities the Fund May Purchase
The Fund may invest in corporate debt obligations such as bonds, notes, and
debentures; obligations convertible into common stocks; obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities;
obligations denominated in either U.S. dollars or foreign currencies issued by
foreign corporations and governments (including Canadian provinces and their
instrumentalities) and supranational entities; commercial paper; and currency
deposits or equivalents.
Because the Fund seeks a maximum level of income consistent with prudent
exposure to risk, under normal market conditions at least 75% of the Fund's
portfolio will be invested in debt securities that are rated in one of the four
highest rating categories or in unrated securities that are of comparable
quality as determined by the Fund's investment manager. The four highest rating
categories are AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P"), or
Aaa, Aa, A or Baa by Moody's Investors Service ("Moody's").
Debt securities within the top three categories (AAA, AA and A by S&P or Aaa, Aa
or A by Moody's) comprise what are known as high-grade bonds and are regarded as
having a strong capacity to pay principal and interest. Medium-grade bonds (BBB
by S&P or Baa by Moody's) are regarded as having an adequate capacity to pay
principal and interest but with greater vulnerability to adverse economic
conditions and some speculative characteristics
Although the Fund may invest up to 25% of its portfolio in securities that are
not in the four highest rating categories or of comparable quality, the Fund
will not invest in any debt securities rated lower than B by Moody's or S&P or
in any equity securities of an issuer if a majority of the issuer's debt
securities are rated lower than B by Moody's or S&P. Similarly, the Fund will
not invest in any unrated debt securities that the Fund considers to be of lower
comparable quality than securities rated B by Moody's or S&P. Debt securities
rated B by Moody's are regarded as generally lacking the characteristics of
desirable investments and, in Moody's judgment, assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small. Debt securities rated BB or B by S&P are
regarded, on balance, as predominantly speculative with respect to the capacity
to pay interest and repay principal in accordance with the terms of the
obligation. An appendix discussing these ratings is included in the SAI. The
Fund does not intend to invest more than 5% of its net assets in debt securities
rated below Baa by Moody's or BBB by S&P.
Although market risks are inherent in any investment program, the Fund believes
that such risks may be minimized through careful analysis of issuers whose
securities are considered for purchase. Moreover, while the opinion of rating
services is considered in selecting rated securities for the Fund's portfolio,
the Fund's investment manager relies primarily on its own credit analysis, which
includes a study of the existing debt issuer's capital structure, ability to
service debt and to pay dividends, and the current tend of earnings for any
company under consideration for investment by the Fund. The net asset value per
share of the Fund will fluctuate, however, as the market value of its investment
portfolio fluctuates.
Under normal economic conditions, the Fund will invest at least 65% of its
assets in intermediate-term obligations. Intermediate-term obligations in which
the Fund invests typically will have effective remaining maturities of between
two and ten years at the time of purchase. The remaining 35% may be invested, to
the extent available and permissible, in obligations with maturities that are
shorter than two years or longer than ten years at the time of purchase.
The Fund will consider the effective maturity of a "putable" bond to be its
optional redemption date or dates. An obligation that requires the obligor to
periodically prepay portions of the obligation before its stated maturity will
be considered by the Fund to have a maturity equal to its expected average life
or average term. These are not fundamental policies of the Fund and may be
changed by the Board of Trustees.
In any period of market weakness or of uncertain market or economic conditions,
the Fund may establish a temporary defensive position to preserve capital by
investing all or a part of its assets in short-term, fixed-income securities,
cash or cash equivalents. Such investments may include U.S. government
securities, bank certificates of deposit, bankers' acceptances and high-grade
commercial paper issued by domestic corporations.
U.S. Government Securities. The Fund may invest in all types of U.S. government
securities including: (1) U.S. Treasury obligations with varying interest rates,
maturities and dates of issuance, such as U.S. Treasury bills (maturities of one
year or less), U.S. Treasury notes (original maturities of one to ten years) and
U.S. Treasury bonds (generally original maturities of greater than ten years);
and (2) obligations issued or guaranteed by U.S. government agencies and
instrumentalities such as the Government National Mortgage Association ("GNMA"),
the Export-Import Bank and the Farmers Home Administration. Some of the Fund's
investments will include obligations which are supported by the full faith and
credit of the U.S. government. In the case of U.S. government obligations that
are not backed by the full faith and credit of the U.S. government (e.g.,
obligations of the Federal National Mortgage Association ("FNMA") and a Federal
Home Loan Bank), the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments.
Collateralized Obligations. The Fund may invest in collateralized obligations,
which generally are bonds issued by single purpose, stand-alone finance
subsidiaries or trusts of financial institutions, government agencies or
instrumentalities, investment bankers or other similar institutions, such as
Collateralized Automobile Receivables ("CARs") and Collateralized Mortgage
Obligations ("CMOs"). All such collateralized obligations will either be issued
or guaranteed by a U.S. government agency or instrumentality rated AAA by a
nationally recognized statistical rating agency.
CARs are generally automobile loan pass-through certificates issued by single
purpose, stand alone financial subsidiaries or trusts (such as Grantor Trusts)
of financial institutions, government agencies or instrumentalities, investment
bankers or other similar institutions.
CMOs purchased by the Fund may be:
(1) collateralized by pools of mortgages in which each mortgage is guaranteed as
to payment of principal and interest by an agency or instrumentality of the U.S.
government;
(2) collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and the guarantee is collateralized by
U.S. government securities; or
(3) securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the credit
of an agency or instrumentality of the U.S. government.
For a discussion of the risks involved in buying these types of collateralized
obligations, please see "What Are the Fund's Potential Risks?" below.
Options and Financial Futures. The Fund may engage in various option and hedging
activities. Specifically, the Fund may write covered call and put options and
under limited circumstances, for bona fide hedging purposes only, purchase
certain options on securities and interest rate futures contracts. The option
and hedging activities that the Fund is authorized to engage in are summarized
below and described in greater detail in the SAI.
The Fund may write covered call and put options on any securities it may
purchase for its portfolio. The principal reason for writing call or put options
is to obtain, through the receipt of premiums, a greater current return than
would be realized on the underlying securities alone. The Fund's current return
can be expected to fluctuate because opportunities to realize net gains from a
covered call and put option writing program and income yields vary as economic
and market conditions change. The Fund may receive a higher or lower total
return from its positions in options than it would have received from its
underlying securities if they had not been subject to options. The Fund does not
engage in option writing strategies for speculative purposes, and writes call
options and put options on a covered basis only, which means that, with respect
to any call options it has written, it will own the underlying securities or
comparable securities satisfying the cover requirements of the securities
exchanges, and, with respect to any put options it has written, it will maintain
in a separate account cash or U.S. government securities with a value at least
equal to the exercise price of the put option.
The Fund may also purchase put and call options on securities, but only for
limited purposes. The Fund may purchase call and put options for the purpose of
offsetting its obligations pursuant to previously written options. The Fund may
purchase put options only on U.S. government securities in its portfolio in
anticipation of a decline in the market value of such securities and then only
in amounts not exceeding 10% of its total assets. The Fund's ability to purchase
put options allows it to protect unrealized gains in appreciated U.S. government
securities in its portfolio without actually selling the securities and while
continuing to receive interest income on the securities.
In addition, solely for hedging purposes, the Fund may purchase and sell put and
call options on interest rate futures contracts. The Fund may not purchase or
sell options on interest rate futures contracts if immediately thereafter the
value of those contracts would constitute more than 30% of the Fund's total
assets or if the sum of the premiums paid for the options would exceed 5% of the
Fund's total assets.
The Fund's option and hedging activities involve certain risks as summarized in
"What Are the Fund's Potential Risks?" and as more fully discussed in the SAI.
Foreign Securities. The Fund may, using the criteria set forth above, invest any
portion of its assets in debt securities issued by foreign corporations and
governments, their instrumentalities, and supranational entities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the World
Bank, the European Development Bank and the Asian Development Bank.
The Fund may invest in securities issued in any currency and may hold foreign
currency to the extent consistent with its objective and policies described
above. Securities of issuers within a given country may be denominated in the
currency of that or another country, or in multinational currency units.
Other Policies of the Fund
U.S. Treasury Rolls. The Fund may enter into "U.S. Treasury rolls" in which the
Fund sells outstanding U.S. Treasury securities and buys back "when-issued" U.S.
Treasury securities of slightly longer maturity for simultaneous settlement on
the settlement date of the "when-issued" U.S. Treasury security. Two potential
advantages of such a strategy are 1) the Fund can regularly and incrementally
adjust its weighted average maturity (which otherwise would constantly diminish
with the passage of time); and 2) in a normal yield curve environment (in which
shorter maturities yield less than longer maturities), a gain in yield to
maturity can be obtained along with the desired extension.
During the period prior to settlement date, the Fund continues to earn interest
on the securities it is selling. It does not earn interest on the securities
that it is purchasing until after settlement date. The Fund could suffer an
opportunity loss if the counterparty to the roll failed to perform its
obligations on settlement date, and if market conditions changed adversely. The
Fund intends, however, to enter into U.S. Treasury rolls only with government
securities dealers recognized by the Federal Reserve Board or with member banks
of the Federal Reserve System.
Loans of Portfolio Securities. Although the Fund may lend its portfolio
securities to qualified securities dealers or other institutional investors, the
Fund currently intends to limit its lending of securities to no more than 5% of
its total assets. For a description of the Fund's securities lending procedures,
please see the SAI.
Repurchase Agreements. The Fund may engage in repurchase transactions, in which
the Fund purchases a U.S. government security subject to resale to a bank or
dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Fund in each agreement, with the value of the
underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Fund to experience a loss or delay
in the liquidation of the collateral securing the repurchase agreement. The Fund
might also incur disposition costs in liquidating the collateral. The Fund,
however, intends to enter into repurchase agreements only with financial
institutions such as broker-dealers and banks which are deemed creditworthy by
the Fund's investment manager. A repurchase agreement is deemed to be a loan by
the Fund under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Fund by a custodian approved by the
Fund's Board of Trustees and will be held pursuant to a written agreement.
Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) or restricted securities may not constitute, at the time of
purchase, more than 10% of the value of the total net assets of the Fund.
Portfolio Turnover. The Fund's portfolio turnover rate for the fiscal years
ended 1994 and 1995 was 10.57% and 64.70%, respectively. The higher portfolio
turnover rate for the fiscal year ended 1995 was due to higher interest rates
early in the year, which encouraged the sale of intermediate-term U.S.
Treasuries by the Fund, and the significant capital appreciation of certain
bonds that the investment manager determined were ripe for sale. High portfolio
turnover may increase transaction costs which must be paid by the Fund and may
increase taxable capital gains. The investment manager will consider the
potential benefits of investing in Treasury rolls against these considerations.
Investment Restrictions. The Fund may borrow money only from banks for temporary
or emergency purposes in amounts not to exceed 15% of the Fund's total assets,
and additional investments may not be made while any amounts borrowed are in
excess of 5% of the Fund's total assets. The Fund is subject to a number of
additional investment restrictions, some of which may be changed only with the
approval of shareholders, which limits its activities to some extent. For a list
of these restrictions and more information concerning the policies discussed
herein, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.
What Are the Fund's Potential Risks?
Collateralized Automobile Receivables. Because CARs are asset-backed securities,
they have certain risks not presented by mortgage-backed securities.
Asset-backed securities do not have the benefit of the same type of security
interests in the related collateral. In the case of automobile receivables,
there is a risk that the holders may not have either a proper or first security
interest in all of the obligations backing the receivables due to the large
number of vehicles involved in a typical issuance and technical requirements
under state laws. Therefore, recoveries on repossessed collateral may not always
be available to support payments on the securities.
Collateralized Mortgage Obligations. CMOs and other mortgage-backed securities
differ from conventional bonds in that the principal is paid back over the life
of the certificate rather than at maturity. As a result, the Fund will receive
monthly scheduled payments of principal and interest on its investment in these
securities, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the Fund reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest which is lower than the rate on the existing security. For this
reason, mortgage-backed securities may be less effective than other types of
U.S. government securities as a means of "locking in" long-term interest rates.
The market value of mortgage-backed securities, like other U.S. government
securities in the Fund's portfolio, will generally vary inversely with changes
in market interest rates, declining when interest rates rise and rising when
interest rates decline. However, mortgage-backed securities, while having
comparable risk of decline in value during periods of rising rates, may have
less potential for capital appreciation than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. In addition, to the extent such securities are purchased
at a premium, mortgage foreclosures and unscheduled principal prepayments may
result in some loss of the Fund's principal investment to the extent of the
premium paid.
Options and Financial Futures. The purchase of put and call options involves the
risk that the price of the underlying securities or interest rate futures
contracts will not move in the anticipated direction during the option periods,
and the Fund may
lose all or some portion of the amount of the premiums it has paid (plus
transaction costs). Options on interest rate futures contracts involve a
somewhat greater risk in that a liquid market for such options may not exist to
permit the Fund to establish or close out its positions. Although the Fund
generally will purchase only options for which there appears to be an active
market, there is no assurance that a liquid market on any exchange will exist
for any particular option or at any particular time.
The principal risk with respect to writing covered call and put options is the
Fund's possible inability to effect closing transactions at favorable prices. By
writing the option, the Fund agrees to buy or sell the security at a specified
price during a specified period, and, until the option lapses (i.e., the
specified period expires or the option is exercised) or is canceled by a closing
transaction, the Fund cannot sell the covering security to recognize a profit
(or limit a loss). In addition, if the price of the underlying security does not
move in the anticipated direction, the Fund will have to sell or buy the
covering security at a price that is below market (in the case of a security
sold upon the exercise of a written call option) or buy the covering security at
a price that is above market (in the case of a security purchased upon the
exercise of a written put option) unless the Fund can close out its optioned
position prior to the option exercise date. Moreover, until an option lapses or
is canceled by a closing transaction, the maximum sales price the Fund may
realize on a security subject to an option is limited to the option price. The
Fund continues, however, to bear the risk of a decline in the price of a
security subject to an option during the option period, although any potential
loss during that period would be reduced by the amount of the option premium
received. Although certain risks are involved in these option and hedging
transactions, the Manager believes that, because the Fund writes only covered
options on portfolio securities and purchases options only for hedging purposes,
the options and hedging strategies of the Fund do not subject it to the risks
frequently associated with these transactions.
The Fund's investment in options may be limited by the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for qualification as a
regulated investment company. These instruments require the application of
complex and special tax rules and elections, more information about which is
included in the SAI.
Transactions in options, options on futures, CARS, and CMOs are generally
considered "derivative securities."
Foreign Securities. There are inherent risks associated with investments in
foreign securities. An investment may be affected by changes in currency rates
and exchange control regulations, and the Fund may incur transaction charges in
exchanging currencies. Foreign government securities are frequently not subject
to the accounting and financial reporting standards applicable to U.S.
government securities and less information may be available regarding these
securities. Most foreign government securities are traded in foreign
over-the-counter markets or on foreign stock exchanges, and are generally less
liquid and more volatile than comparable U.S. government securities. There is
also the possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments that could adversely affect the
value of those investments. See the SAI for further information.
Foreign exchange gains and losses realized by the Fund in connection with
transactions involving foreign currencies, foreign currency payables or
receivables, and foreign currency-denominated debt securities are subject to
special tax rules which may cause these gains and losses to be treated as
ordinary income and losses rather than capital gains and losses and may affect
the amount and timing of the Fund's income or loss from these transactions and
in turn its distributions to shareholders.
How You Participate in the
Results of the Fund's Activities
The assets of the Fund are invested in portfolio securities. If the securities
owned by the Fund increase in value, the value of the shares of the Fund which
you own will increase. If the securities owned by the Fund decrease in value,
the value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, you may anticipate that the value of Fund
shares will fluctuate with movements in the broader equity and bond markets.
To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrials or the Standard & Poor's 500 average or any other equity based
index, may also be reflected in declines in the Fund's share price. History
reflects both increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably in the future.
Who Manages the Fund?
The Board has the primary responsibility for the overall management of the Trust
and for electing the officers of the Trust who are responsible for administering
its day-to-day operations.
Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its subsidiaries. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.
The team responsible for the day-to-day management of the Fund's portfolio is:
William Lippman and Philip Smith since the Fund's inception under L.F.
Rothschild Fund Management, Inc. and Margaret McGee since 1988.
William Lippman
Senior Vice President of Advisers
Mr. Lippman holds a bachelor's degree in business administration from City
College of New York and a master's degree in business administration from the
Graduate School of Business Administration of New York University. He has been
with Advisers since 1988.
Philip Smith
Portfolio Manager of Advisers
Mr. Smith holds a bachelor of arts degree from Princeton University and a juris
doctorate degree from Yale University. He has been with Advisers since 1988.
Margaret McGee
Portfolio Manager of Advisers
Ms. McGee holds a bachelor of arts degree from William Patterson College. She
has been with Advisers since 1988.
Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Fund are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Trust's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Trust's
Code of Ethics.
During the fiscal year ended September 30, 1995, management fees totaling 0.50%
of the average daily net assets of the Fund were paid to Advisers.
Among the responsibilities of the Manager under the management agreement is the
selection of brokers and dealers through whom transactions in the Fund's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the Fund,
as factors in selecting a broker. Further information is included under "How Do
the Funds Purchase Securities For Their Portfolios?" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
During the fiscal year ended September 30, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.09% of the
average daily net assets of the Fund.
Plan of Distribution
A plan of distribution has been approved and adopted for the Fund (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund may
reimburse Distributors or others for all expenses incurred by Distributors or
others in the promotion and distribution of the Fund's shares. Such expenses may
include, but are not limited to, the printing of prospectuses and reports used
for sales purposes, expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses attributable to
the distribution of Fund shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement.
The maximum amount which the Fund may reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a monthly basis.
The Plan also covers any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plan are included in the maximum operating
expenses which may be borne by the Fund. For more information, please see "The
Trust's Underwriter" in the SAI.
What Distributions Might
I Receive from the Fund?
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of
dividends, interest and other income derived from its investments. This income,
less the expenses incurred in the Fund's operations, is its net investment
income from which income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any net capital loss carryovers) may generally
be made once a year in December to reflect any net short-term and net long-term
capital gains realized by the Fund as of October 31 of the current fiscal year
and any undistributed capital gains from the prior fiscal year. The Fund may
make more than one distribution derived from net short-term and net long-term
capital gains in any year or adjust the timing of these distributions for
operational or other reasons.
Distribution Date
Although subject to change by the Board without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends for
shareholders of record on the last business day of the month, payable on or
about the 15th day of the following month.
The amount of income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board. Fund shares are quoted
ex-dividend on the first business day following the record date. The Fund does
not pay "interest" or guarantee any fixed rate of return on an investment in its
shares.
In order to be entitled to a dividend, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you should be
aware that because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply and demand, any
distribution of income or capital gain will result in a decrease in the value of
the Fund's shares equal to the amount of the distribution. While a dividend or
capital gain distribution received shortly after purchasing shares represents,
in effect, a return of a portion of your investment, it may be taxable as
dividend income or capital gain.
Distribution Options
You may choose to receive your distributions from the Fund in any of these ways:
1. Purchase additional shares of the Fund - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.
2. Purchase shares of other Franklin Templeton Funds - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.
3. Receive distributions in cash - You may choose to receive dividends, or both
dividend and capital gain distributions, in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"
To select one of these options, please complete sections 6 and 7 of the
Shareholder Application included with this Prospectus or tell your investment
representative which option you prefer. If no option is selected, dividend and
capital gain distributions will be automatically reinvested in the Fund. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For additional information on tax matters
relating to the Fund and its shareholders, see "Additional Information Regarding
Taxation" in the SAI.
Each series of the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends which you receive from the
Fund, as well as any distributions derived from the excess of net short-term
capital gain over net long-term capital loss, are treated as ordinary income
whether you have elected to receive them in cash or in additional shares.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss are treated as long-term capital gain regardless of the
length of time you have owned Fund shares and regardless of whether such
distributions are received in cash or in additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to you
until the following January, will be treated for tax purposes as if paid by the
Fund and received by you on December 31 of the calendar year in which they are
declared.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a gain or a loss. Any loss incurred on sale or exchange of Fund shares,
held for six months or less, will be treated as a long-term capital loss to the
extent of capital gain dividends received with respect to such shares.
For corporate shareholders, none of the distributions paid by the Fund for the
fiscal year ended September 30, 1995 qualified for the corporate
dividends-received deduction and it is not anticipated that any of the current
year's dividends will qualify.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid, and will promptly after the close of each calendar year
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
If you are not a U.S. person for purposes of federal income taxation, you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes on distributions received by you from the Fund and
the application of foreign tax laws to these distributions.
You should consult your tax advisors with respect to the applicability of state
and local intangible property or income taxes to your shares in the Fund and to
distributions and redemption proceeds received from the Fund.
How Do I Buy Shares?
You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. If you are buying
shares through a retirement plan established by the Franklin Templeton Group,
these minimums may be waived. To open your account, contact your investment
representative or complete and sign the enclosed Shareholder Application and
return it to the Fund with your check.
Purchase Price of Fund Shares
You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.
Quantity Discounts in Sales Charges
The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.
<TABLE>
<CAPTION>
Total Sales Charge
As a Percentage of Amount Allowed to
Net AmountDealer As a Percentage
Size of Transaction at Offering Price Offering Price Invested of Offering Price*
<S> <C> <C> <C>
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more None** None None***
</TABLE>
*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times allow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.
**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."
***Please see "General - Other Payments to Securities Dealers" below for a
discussion of commissions Distributors may pay to securities dealers out of its
own resources.
Rights of Accumulation. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.
Letter of Intent. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.
By completing the Letter of Intent section of the Shareholder Application, you
acknowledge and agree to the following:
o You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.
o You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem any
or all of these reserved shares to pay any unpaid sales charge if you do not
fulfill the terms of the Letter.
o We will include the reserved shares in the total shares you own as reflected
on your periodic statements.
o You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.
o Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.
o Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.
Group Purchases. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.50%.
We define a qualified group as one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount
and (iii) satisfies uniform criteria which enable Distributors to realize
economies of scale in its costs of distributing shares.
In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.
If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.
Purchases at Net Asset Value
You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:
(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. When you return the distribution, please include a written request to
reinvest the money at net asset value. You may reinvest Class II distributions
in either Class I or Class II shares, but Class I distributions may only be
invested in Class I shares under this privilege. For more information, see
"Distribution Options" under "What Distributions Might I Receive From the Fund?"
or call Shareholder Services at 1-800/632-2301;
(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;
(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. When you return the
distribution, please include a written request to reinvest the money at net
asset value. The distribution must be returned to the Fund within 365 days of
the distribution date; or
(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.
You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money in writing to the Fund within 365 days of the redemption date. You
may reinvest up to the total amount of the redemption proceeds under this
privilege. If a different class of shares is purchased, the full front-end sales
charge must be paid at the time of purchase of the new shares. While you will
receive credit for any contingent deferred sales charge paid on the shares
redeemed, a new contingency period will begin. Shares that were no longer
subject to a contingent deferred sales charge will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge. Shares
exchanged into other Franklin Templeton Funds are not considered "redeemed" for
this privilege (see "What If My Investment Outlook Changes? Exchange
Privilege").
If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.
If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.
A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.
Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:
(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;
(ii) accounts managed by the Franklin Templeton Group;
(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;
(iv) registered securities dealers and their affiliates, for their investment
accounts only;
(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;
(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, or registered investment advisors affiliated with such
broker-dealers, on behalf of their clients who are participating in a
comprehensive fee program (sometimes known as a wrap fee program);
(vii) any state, county, or city, or any instrumentality, department, authority
or agency thereof which has determined that the Fund is a legally permissible
investment and which is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of any
registered management investment company ("an eligible governmental authority").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;
(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;
(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and that agree to invest at least $1
million in Franklin Templeton Funds over a 13 month period. We will accept
orders for such accounts by mail accompanied by a check or by telephone or other
means of electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next business
day following such order;
(x) insurance company separate accounts investing for pension plan contracts;
(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $10 million or
more, without regard to where such assets are currently invested; or
(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements described under "Group Purchases," above.
If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.
How Do I Buy Shares in Connection
with Tax-Deferred Retirement Plans?
Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to provide the plan documents and serve as custodian or
trustee. A plan document must be adopted in order for a retirement plan to be in
existence.
Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236). Trust Company is an affiliate of Distributors.
Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or benefits and
pension plan consultants before choosing a retirement plan. In addition, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.
General
The Fund continuously offers it shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
Other Payments to Securities Dealers. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 0.75% on sales of $1
million but less than $2 million, plus 0.60% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but less than $50 million,
plus 0.25% on sales of $50 million but less than $100 million, plus 0.15% on
sales of $100 million or more. These breakpoints are reset every 12 months for
purposes of additional purchases.
Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above and up to 0.75% of the amount
purchased to securities dealers who initiate and are responsible for purchases
made at net asset value by Non-Designated Retirement Plans.
Please see "How Do I Buy and Sell Shares?" in the SAI for the breakpoints
applicable to these purchases.
Either Distributors or one of its affiliates, out of its own resources, may also
provide additional compensation to securities dealers in connection with the
sale of shares of the Franklin Templeton Funds. In some cases, this compensation
may be available only to securities dealers whose representatives have sold or
are expected to sell significant amounts of shares of the Franklin Templeton
Funds. Compensation may include financial assistance and payments made in
connection with conferences, sales or training programs for employees of the
securities dealer, seminars for the public, advertising, sales campaigns and/or
shareholder services, programs regarding one or more of the Franklin Templeton
Funds and other programs or events sponsored by securities dealers, and payment
for travel expenses of invited registered representatives and their families,
including lodging, in connection with business meetings or seminars located
within or outside the United States. Securities dealers may not use sales of the
Fund's shares to qualify for this compensation if prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. None of this compensation is paid for by the Fund or its
shareholders.
For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Trust who are affiliated with Distributors. See "Officers
and Trustees."
What Programs and Privileges
Are Available to Me as a Shareholder?
Certain of the programs and privileges described in this section may not be
available directly from the Fund if your shares are held, of record, by a
financial institution or in a "street name" account, or networked account
through the National Securities Clearing Corporation ("NSCC") (see "Registering
Your Account" in this Prospectus).
Share Certificates
Shares from an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Fund,
without the issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the risk of loss or
theft of a share certificate. A lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond,
which is generally borne by you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or by your securities dealer.
Confirmations
A confirmation statement will be sent to you quarterly to reflect the dividends
reinvested during the period and after each other transaction which affects your
account. This statement will also show the total number of shares you own,
including the number of shares in "plan balance" for your account.
Automatic Investment Plan
The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to purchase additional shares. If
you are interested in this program, please refer to the Automatic Investment
Plan Application at the back of this Prospectus for the requirements of the
program or contact your investment representative. Of course, the market value
of the Fund's shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may terminate the
program at any time by notifying Investor Services by mail or by phone.
Systematic Withdrawal Plan
The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.
If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:
1. Purchase shares of other Franklin Templeton Funds - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.
2. Receive payments in cash - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.
There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.
Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.
While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge.
Please see "Contingent Deferred Sales Charge" under "How Do I Sell Shares?"
You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend a payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.
Electronic Fund Transfers
You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.
Institutional Accounts
There may be additional methods of purchasing, redeeming or exchanging shares of
the Fund available to institutional accounts. For further information, contact
the Franklin Templeton Institutional Services Department at 1-800/321-8563.
What If My Investment Outlook Changes? - Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of other Franklin Templeton Funds which are eligible for
sale in your state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
No exchanges between different classes of shares will be allowed. Shareholders
may choose to redeem shares of the Fund and purchase Class II shares of another
Franklin Templeton Fund but such purchase will be subject to that fund's Class
II front-end and contingent deferred sales charges. Although there are no
exchanges between different classes of shares, Class II shareholders of a
Franklin Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.
A contingent deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent deferred sales charge
in the original fund purchased and shares are subsequently redeemed within the
contingency period, a contingent deferred sales charge will be imposed.
Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.
You may exchange shares in any of the following ways:
By Mail
Send written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed. The transaction will be
effective upon receipt of the written instructions together with any outstanding
share certificates.
By Telephone
You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
Franklin TeleFACTS(R) system (day or night) at 1-800/247-1753. If you do not
wish this privilege extended to a particular account, you should notify the Fund
or Investor Services.
The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement and the TeleFACTS(R)
option may not be available. In this event, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.
Through Securities Dealers
As is the case with all purchases and redemptions of the Fund's shares, Investor
Services will accept exchange orders from securities dealers who execute a
dealer or similar agreement with Distributors. See also "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your account or for which certificates have previously been
deposited. A securities dealer may charge a fee for handling an exchange.
Additional Information Regarding Exchanges
Exchanges are made on the basis of the net asset value of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of shares of the Fund which were purchased with a lower sales
charge into a fund which has a higher sales charge will be charged the
difference, unless the shares were held in the Fund for at least six months
prior to executing the exchange.
The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be transferred to
the fund being exchanged into and will be invested at net asset value. Because
the exchange is considered a redemption and purchase of shares, you may realize
a gain or loss for federal income tax purposes. Backup withholding and
information reporting may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section in this
Prospectus and under "Additional Information Regarding Taxation" in the SAI.
If a substantial portion of the Fund's shareholders should, within a short
period, elect to redeem their shares of the Fund pursuant to the exchange
privilege, the Fund might have to liquidate portfolio securities it might
otherwise hold and incur the additional costs related to such transactions. On
the other hand, increased use of the exchange privilege may result in periodic
large inflows of money. If this should occur, it is the general policy of the
Fund to initially invest this money in short-term, interest-bearing money market
instruments, unless it is felt that attractive investment opportunities
consistent with the Fund's investment objective exist immediately. Subsequently,
this money will be withdrawn from such short-term money market instruments and
invested in portfolio securities in as orderly a manner as is possible when
attractive investment opportunities arise.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Retirement Plan Accounts
Franklin Templeton IRA and 403(b) retirement plan accounts may exchange shares
directly. Certain restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
Timing Accounts
Accounts which are administered by allocation or market timing services to
exchange shares based on predetermined market indicators ("Timing Accounts")
will be charged a $5.00 administrative service fee per each such exchange. All
other exchanges are without charge.
Restrictions on Exchanges
In accordance with the terms of their respective prospectuses, certain funds do
not accept or may place differing limitations than those below on exchanges by
Timing Accounts.
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, (ii) makes more than two exchanges out of the Fund per calendar
quarter, or (iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Fund's net assets. Accounts under common ownership or
control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limits.
The Fund also reserves the right to refuse the purchase side of an exchange
request by any Timing Account, person, or group if, in the Manager's judgment,
the Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors, as indicated under "How Do I Buy Shares?", reserve
the right to refuse any order for the purchase of shares.
How Do I Sell Shares?
You may liquidate your shares at any time and receive from the Fund the value of
the shares. You may redeem shares in any of the following ways:
By Mail
Send a written request, signed by all registered owners, to Investor Services,
at the address shown on the back cover of this Prospectus, and any share
certificates which have been issued for the shares being redeemed, properly
endorsed and in order for transfer. You will then receive from the Fund the
value of the shares redeemed based upon the net asset value per share (less a
contingent deferred sales charge, if applicable) next computed after the written
request in proper form is received by Investor Services. Redemption requests
received after the time at which the net asset value is calculated will receive
the price calculated on the following business day. The net asset value per
share is determined as of the scheduled close of the Exchange (generally 1:00
p.m. Pacific time) each day that the Exchange is open for trading. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.
To be considered in proper form, signatures must be guaranteed if the redemption
request involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owners of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
address of record, preauthorized bank account or brokerage firm account;
(4) share certificates, if the redemption proceeds are in excess of $50,000; or
(5) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions, including,
for example, when (a) the current address of one or more joint owners of an
account cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an agent,
not the actual registered owner, (e) the Fund determines that joint owners who
are married to each other are separated or may be the subject of divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been established to the
satisfaction of the Fund.
Signatures must be guaranteed by an "eligible guarantor institution" as defined
under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Where shares to be redeemed are represented by share certificates, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your protection, to send the share certificate and assignment form in
separate envelopes if they are being mailed in for redemption.
Liquidation requests of corporate, partnership, trust and custodianship
accounts, and accounts under court jurisdiction require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officers of the corporation and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
Payment for redeemed shares will be sent to you within seven days after receipt
of the request in proper form.
By Telephone
If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts." You may obtain
additional information about telephone redemptions by writing to the Fund or
Investor Services at the address shown on the cover or by calling
1-800/632-2301. The Fund and Investor Services will employ reasonable procedures
to confirm that instructions given by telephone are genuine. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."
If your account has a completed Agreement on file, redemptions of uncertificated
shares or shares which have previously been deposited with the Fund or Investor
Services may be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the Exchange
(generally 1:00 p.m. Pacific time) on any business day will be processed that
same day. The redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only to the address
of record.
Redemption requests by telephone will not be accepted within 30 days following
an address change by telephone. In that case, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities which qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that wish to execute redemptions in excess of
$50,000 must complete an Institutional Telephone Privileges Agreement which is
available from the Franklin Templeton Institutional Services Department by
calling 1-800/321-8563.
Through Securities Dealers
The Fund will accept redemption orders from securities dealers who have entered
into an agreement with Distributors. This is known as a repurchase. The only
difference between a normal redemption and a repurchase is that if you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
letter should reference the Fund, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number, and the amount of
shares or dollars, will help speed processing of the redemption. The seven-day
period within which the proceeds of your redemption will be sent will begin when
the Fund receives all documents required to complete ("settle") the repurchase
in proper form. The redemption proceeds will not earn dividends or interest
during the time between receipt of the dealer's repurchase order and the date
the redemption is processed upon receipt of all documents necessary to settle
the repurchase. Thus, it is in your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.
Contingent Deferred Sales Charge
In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment will be assessed a contingent
deferred sales charge, unless one of the exceptions described below applies. The
charge is 1% of the lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net asset value at
the time of purchase of such shares, and is retained by Distributors. The
contingent deferred sales charge is waived in certain instances.
In determining whether a contingent deferred sales charge applies, shares not
subject to a contingent deferred sales charge are deemed to be redeemed first,
in the following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation on shares held less than the contingency
period; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than the contingency period.
Shares subject to a contingent deferred sales charge will then be redeemed on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.
The contingent deferred sales charge is waived, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value;" exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
redemptions through a Systematic Withdrawal Plan set up for shares prior to
February 1, 1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value (3% quarterly,
6% semiannually or 12% annually). For example, if an account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge. Any amount over that
$120,000 would be assessed a 1% contingent deferred sales charge.
All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.
Unless otherwise specified, requests for redemptions of a specified dollar
amount will result in additional shares being redeemed to cover any applicable
contingent deferred sales charge, while requests for redemption of a specific
number of shares will result in the applicable contingent deferred sales charge
being deducted from the total dollar amount redeemed.
Additional Information Regarding Redemptions
The Fund may delay the mailing of the redemption check, or a portion thereof,
until the clearance of the check used to purchase Fund shares, which may take up
to 15 days or more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks will also be
held pending clearance. Shares purchased by federal funds wire are available for
immediate redemption.
The right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it, by order, for the protection of shareholders. Of course, the
amount received may be more or less than the amount you invested, depending on
fluctuations in the market value of securities owned by the Fund.
Retirement Plan Accounts
Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms.
Tax penalties will generally apply to any distribution from such plans to a
participant under age 59 1/2, unless the distribution meets one of the
exceptions set forth in the Code.
Other Information
Distribution or redemption checks sent to you do not earn interest or any other
income during the time such checks remain uncashed and neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
"Cash" payments to or from the Fund may be made by check, draft or wire. The
Fund has no facility to receive, or pay out, cash in the form of currency.
For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.
Telephone Transactions
By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, (iv) request
the issuance of certificates (to be sent to the address of record only) and (v)
exchange Fund shares as described in this Prospectus by telephone. In addition,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you will be able to redeem shares of the Fund.
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call for the purpose
of establishing the caller's identification, and sending a confirmation
statement on redemptions to the address of record each time account activity is
initiated by telephone. So long as the Fund and Investor Services follow
instructions communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their affiliates will be
liable for any loss to you caused by an unauthorized transaction. The Fund and
Investor Services may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not followed. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. While the telephone exchange privilege is extended to
Franklin Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privilege will be difficult to execute because of heavy
telephone volume. In such situations, you may wish to contact your investment
representative for assistance or send written instructions to the Fund as
detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from your inability to execute a telephone transaction.
How Are Fund Shares Valued?
The net asset value per share of the Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading. Many newspapers carry daily quotations of the
prior trading day's closing "bid" (net asset value) and "ask" (offering price,
which includes the maximum front-end sales charge of the Fund).
The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.
How Do I Get More Information
About My Investment?
Any questions or communications regarding your account should be directed to
Investor Services at the address shown on the back cover of this Prospectus.
From a touch-tone phone, you may access an automated system (day or night) which
offers the following features.
By calling the Franklin TeleFACTS(R) system at
1-800/247-1753, you may obtain account information, current price and, if
available, yield or other performance information specific to the Fund or any
Franklin Templeton Fund. In addition, you may process an exchange within the
same class into an identically-registered Franklin account and request duplicate
confirmation or year-end statements and deposit slips.
The Fund code, which will be needed to access system information, is 59. The
system's automated operator will prompt you with easy-to-follow step-by-step
instructions from the main menu. Other features may be added in the future.
To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided. The same numbers may be used when calling
from a rotary phone.
Hours of Operation (Pacific time)
Department Name Telephone No. (Monday through Friday)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
How Does the Fund Measure Performance?
Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
public offering price (offering price includes sales charge) for one-, five- and
ten-year periods, or portion thereof, to the extent applicable, through the end
of the most recent calendar quarter, assuming reinvestment of all distributions.
The Fund may also furnish total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital gain paid to
shareholders, assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a percentage of the
purchase price.
Current yield reflects the income per share earned by the Fund's portfolio
investments. It is calculated by dividing the Fund's net investment income per
share during a recent 30-day period by the maximum public offering price on the
last day of that period and annualizing the result.
Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in the SAI), is not indicative
of the dividends or distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders of the Fund are
reflected in the current distribution rate which may be quoted to you. The
current distribution rate is computed by dividing the total amount of dividends
per share paid by the Fund during the past 12 months by a current maximum
offering price. Under certain circumstances, such as when there has been a
change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid during the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing
and short-term capital gain, and is calculated over a different period of time.
In each case, performance figures are based upon past performance, reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales charge on the purchase of shares. When there has been a change in the
sales charge structure, the historical performance figures will be restated to
reflect the new rate. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance figures should
not be considered to represent what an investment may earn in the future or what
the Fund's total return, current yield, or distribution rate may be in any
future period.
General Information
Reports to Shareholders
The Fund's fiscal year ends September 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Trust at
the telephone number or address set forth on the cover page of this Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.
Organization and Voting Rights
The Trust's name was changed from L.F. Rothschild Managed Trust to Franklin
Managed Trust on June 28, 1988. The Agreement and Declaration of Trust permits
the trustees to issue an unlimited number of shares of beneficial interest of
$.01 par value, which may be issued in any number of series and classes. Shares
issued will have no preemptive or conversion rights. Shares of each series have
equal rights as to dividends and distributions as declared by such series and
the net assets of such series upon liquidation or dissolution. Additional series
or classes may be added in the future by the Board.
Voting rights are noncumulative, so that in any election of trustees, the
holders of more than 50% of the shares voting can elect all of the trustees if
they choose to do so, and in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board.
The Trust does not intend to hold annual shareholders meetings. The Trust may,
however, hold a special shareholders meeting of a series for such purposes as
changing fundamental investment restrictions, approving a new management
agreement or any other matters which are required to be acted on by shareholders
under the 1940 Act. A meeting may also be called by the trustees in their
discretion or by shareholders holding at least ten percent of the outstanding
shares of the Trust. Shareholders will receive assistance in communicating with
other shareholders in connection with the election or removal of trustees such
as that provided in Section 16(c) of the 1940 Act.
Redemptions by the Fund
The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50, but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.
Registering Your Account
An account registration should reflect your intentions as to ownership. Where
there are two co-owners on the account, the account will be registered as "Owner
1" and "Owner 2"; the "or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or convert on the
signature of only one owner, a limited power of attorney may be used.
Accounts should not be registered in the name of a minor, either as sole or
co-owner of the account. Transfer or redemption for such an account may require
court action to obtain release of the funds until the minor reaches the legal
age of majority. The account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform Transfer or Gifts to
Minors Act.
A trust designation such as "trustee" or "in trust for" should only be used if
the account is being established pursuant to a legal, valid trust document. Use
of such a designation in the absence of a legal trust document may cause
difficulties and require court action for transfer or redemption of the funds.
Shares, whether in certificate form or not, registered as joint tenants or "Jt
Ten" shall mean "as joint tenants with rights of survivorship" and not "as
tenants in common."
Except as indicated, you may transfer an account in the Fund carried in "street"
or "nominee" name by your securities dealer to a comparably registered Fund
account maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements on file with
Distributors. Unless a dealer agreement has been executed and is on file with
Distributors, the Fund will not process the transfer and will so inform your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers to evidence consent to the
transfer. Under current procedures, the account transfer may be processed by the
delivering securities dealer and the Fund after the Fund receives authorization
in proper form from your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.
The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you will
be deemed to have authorized the use of electronic instructions on the account,
including, without limitation, those initiated through the services of the NSCC,
to have adopted as instruction and signature any such electronic instructions
received by the Fund and Investor Services, and to have authorized them to
execute the instructions without further inquiry. At the present time, such
services which are available include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be answered by the
securities dealer handling the investment or by calling Franklin's Fund
Information Department.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Application. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are subject to
backup withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by you is in
fact incorrect or upon the failure of a shareholder who has completed an
"awaiting TIN" certification to provide the Fund with a certified TIN within 60
days after opening the account.
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended.
Advisers - Franklin Advisers, Inc., the Fund's investment manager.
Board - The Board of Trustees of the Trust.
Class I and Class II - "Classes" of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes, as determined by the trustees. Certain funds in the
Franklin Templeton Funds currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange and other purposes.
Code - Internal Revenue Code of 1986, as amended.
Designated Retirement Plans - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13-month period. Distributors
determines the qualifications for Designated Retirement Plans.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.
Exchange - New York Stock Exchange.
Franklin Funds - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.
Franklin Templeton Funds - the Franklin Funds and the Templeton Funds.
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.
Investor Services - Franklin/Templeton Investor Services, Inc.
Letter - Letter of Intent.
Manager - Franklin Advisers, Inc., the Fund's investment manager.
Net asset value (NAV) - the value of a mutual fund determined by deducting the
fund's liabilities from the total assets of the portfolio. The net asset value
per share is determined by dividing the net asset value of the Fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.
Non-Designated Retirement Plans - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.
Offering price - The public offering price is equal to the net asset value plus
the 4.25% sales charge.
Proper Form (Purchases) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information.
Securities Dealer - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - the U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund.
Trust Company - Franklin Templeton Trust Company.
FRANKLIN
MANAGED TRUST
Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Corporate Qualified Dividend Fund
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777 FEBRUARY 1, 1996
San Mateo, CA 94403-7777 1-800/DIAL BEN
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Contents Page
How Do the Funds Invest Their Assets?............. 2
What Are the Funds' Potential Risks?.............. 6
Investment Restrictions........................... 8
Officers and Trustees............................. 9
Investment Advisory and Other Services............ 12
How Do the Funds Purchase
Securities For Their Portfolios?................. 13
How Do I Buy and Sell Shares?..................... 14
How Are Fund Shares Valued?....................... 17
Additional Information
Regarding Taxation............................... 18
The Trust's Underwriter........................... 21
General Information............................... 23
Financial Statements.............................. 27
Appendix.......................................... 27
Franklin Managed Trust (the "Trust") is an open-end management investment
company consisting of three separate diversified series: the Franklin Rising
Dividends Fund (the "Rising Dividends Fund"), the Franklin Investment Grade
Income Fund (the "Investment Grade Fund") and the Franklin Corporate Qualified
Dividend Fund (the "Corporate Qualified Fund"). (Each series may also be
referred to as the "Fund" or "Funds.")
A separate Prospectus for each Fund, dated February 1, 1996, each as may be
amended from time to time, provides the basic information you should know before
investing in the Funds and may be obtained without charge from the Trust or from
its principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUSES. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUNDS, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUNDS' PROSPECTUSES.
HOW DO THE FUNDS INVEST THEIR ASSETS?
The following supplements the discussion of each Fund's investment objective and
policies as set forth in each Fund's Prospectus. There can be no assurance that
the objective of any of the Funds will be achieved.
INVESTMENT GRADE FUND
As stated in its Prospectus, the Investment Grade Fund may engage in various
options and hedging transactions as described below.
Options on Securities. To earn additional income, the Investment Grade Fund may
write (i.e., sell) covered call and put options. A call option written by the
Fund obligates the Fund to sell specified securities to the holder of the option
at a specified price at any time before the expiration date. All call options
written by the Fund are covered, which means that the Fund will own the
securities subject to the option (or comparable securities satisfying the cover
requirements of the securities exchanges) so long as the option is outstanding
and the Fund has not terminated its obligation with a closing purchase
transaction, as explained below. While the purpose of writing covered call
options is to realize greater income than would be realized on portfolio
securities transactions alone, the Fund may forego the opportunity to profit
from an increase in the market price of the underlying security.
A put option written by the Fund obligates the Fund to purchase specified
securities from the option holder at a specified price at any time before the
expiration date. All put options written by the Fund are covered, which means
that the Fund has deposited with its custodian bank cash, U.S. government
securities or other liquid securities with a value at least equal to the
exercise price of the put option. The purpose of writing such options is to
generate additional income. In return for the option premium, however, the Fund
accepts the risk that it will be required to purchase the underlying securities
at a price in excess of the securities' market value at the time of purchase.
The Fund may also purchase put and call options on securities, but only for
limited purposes. The Fund may purchase call options for the purpose of
offsetting its obligations pursuant to previously written call options. Such
purchases are referred to as closing purchase transactions. The Fund may
purchase put options only on U.S. government securities in its portfolio in
anticipation of a decline in the market value of such securities and then only
in amounts not exceeding 10% of its total assets. Effectively, the Fund's
ability to purchase put options allows it to protect unrealized gains in
appreciated U.S. government securities in its portfolio without actually selling
the securities and while continuing to receive interest income on the
securities.
The writing and purchasing of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The Fund will pay brokerage
commissions or spreads in connection with its options transactions, as well as
for purchases and sales of underlying securities. The writing of options could
result in significant increases in the Fund's portfolio turnover rate. See "What
Are the Funds' Potential Risks? - Options."
Options on Futures. For bona fide hedging purposes, the Fund may purchase put
and call options on interest rate futures contracts which are traded on
exchanges licensed and regulated by the Commodities Futures Trading Commission
("CFTC") for the purposes of options trading. A "call" option on a futures
contract gives the purchaser the right, in return for the premium paid, to
purchase a futures contract (assume a "long" position) at a specified exercise
price at any time before the option expires. A "put" option gives the purchaser
the right, in return for the premium paid, to sell a futures contract (assume a
"short" position) for a specified exercise price at any time before the option
expires. Interest rate futures contracts are contracts for the future delivery
of U.S. government securities and index-based futures contracts that are, in the
opinion of the Fund's investment manager, sufficiently correlated with the
Fund's portfolio to permit effective hedging against adverse changes in interest
rates.
Upon the exercise of a call option, the writer of the option is obligated to
sell the futures contract (i.e., to deliver a "long" position to the Fund as the
option holder) at the option exercise price, which will presumably be lower than
the current market price of the contract in the futures market. Upon exercise of
a put option, the writer of the option is obligated to purchase the futures
contract (i.e., deliver a "short" position to the Fund as the option holder) at
the option exercise price, which will presumably be higher than the current
market price of the contract in the futures market.
The Fund is entitled to be paid the amount of any gain realized by it with
respect to any option it has purchased upon the exercise of the option. Most
participants in the options markets, however, do not seek to realize their gains
or losses by exercise of their options rights. Instead, the holder of an option
will usually realize a gain or loss by buying or selling an offsetting option at
a market price that will reflect an increase or a decrease from the premium
originally paid. The Fund's ability to establish and close out options positions
at fairly established prices is subject to the maintenance of a liquid market.
Options on futures can be used by the Fund to hedge the same risks as might be
hedged by the direct purchase or sale of the underlying futures contracts. If
the Fund purchases an option on a futures contract, it may obtain benefits
similar to those that would result if it held the futures position itself. But,
in contrast to a futures transaction in which only transaction costs are
involved, the benefits received in an option transaction will be reduced by the
amount of the premium and transaction costs paid by the Fund. There may also be
circumstances when the purchase of an option on an interest rate futures
contract would result in a loss to the Fund when the purchase (or sale) of the
futures contract itself would not result in a loss, such as when there is no
movement in the price of the futures contract or the underlying security. In the
event of an adverse market movement, however, the Fund will not be subject to a
risk of loss on the option transaction beyond the price of the premium paid,
plus any transaction costs.
At the time the Fund enters into an option on a futures contract, it will
maintain, with its custodian bank, assets in a segregated account to cover its
obligations with respect to such contract to the extent required by SEC rules.
Such securities may consist of cash, cash equivalents or high quality debt
securities from its portfolio, in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial and variation margin payments made by the Fund with respect to such
futures contract.
Limitations on Futures Transactions. The Fund has represented to the CFTC that
it will purchase options on interest rate futures contracts solely for bona fide
hedging purposes within the meaning of CFTC regulations. The Fund has also
represented to the CFTC that it will not purchase any options on interest rate
futures contracts if, as a result, the sum of premiums paid for the options the
Fund has purchased would exceed 5% of the Fund's total assets. This limitation
on the Fund's options transactions is not fundamental and may be changed by the
Board of Trustees as the CFTC permits.
Foreign Securities. Investments in debt securities issued by foreign
corporations, governments and their instrumentalities, and by supranational
entities offer potential benefits not available from investments solely in
securities issued by the U.S. government. These benefits include the opportunity
to invest in foreign countries with economic policies or business cycles
different from those of the U.S., or the opportunity to reduce fluctuations in
portfolio value by taking advantage of foreign markets that do not move in a
manner parallel to U.S. markets. While the Fund may invest in foreign securities
without limitation, the Fund's current operating policy is not to invest more
than 25% of its assets in the debt securities of foreign governments. See "What
are the Funds' Pontential Risks? - Foreign Securities."
Putable bonds. When purchasing obligations that entitle a holder to require the
obligor to redeem the securities at the holder's option on a date or dates prior
to the final stated maturity ("putable" bonds), the Fund may consider the
optional redemption date or dates as the effective maturity of the obligations.
When purchasing obligations that require the obligor to prepay periodically
portions of the obligation prior to the stated final maturity (whether by
operation of a fixed known pro rata sinking fund or, as in collateralized
securities, by the periodic passing through of variable payments made to the
issuer on the underlying collateral), the expected average life or average term
of the investment may also be deemed to be its effective maturity. This is not a
fundamental policy of the Fund and may be changed by the Board of Trustees.
Additional Information on Rates of Return. Since the end of World War II, bonds
have typically provided a return averaging about 5.37% above the inflation rate.
The following table demonstrates the real rate of return from corporate bonds
rated "A" by Moody's Investors Service ("Moody's") over the past ten years.
Investors should note that the Fund's portfolio is not comprised exclusively of
such bonds. Accordingly, the table is for illustrative purposes only. The table
is not indicative of the Fund's past, present or future performance. Moreover,
historical returns are not indicative of future returns. The source of this
information is the U.S. Bureau of Labor Statistics and Moody's:
Real Rates of Return
Moody's
Corporate Inflation Real Rate
A Bond Index* Rate (CPI)** of Return
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1985............................. 11.19 3.80 7.39
1986............................. 9.41 1.10 8.31
1987............................. 10.62 4.43 6.19
1988............................. 10.11 4.42 5.69
1989............................. 9.39 4.65 4.74
1990............................. 9.64 6.11 3.53
1991............................. 8.82 3.06 5.76
1992............................. 8.37 2.90 5.47
1993............................. 7.31 2.75 4.56
1994............................. 8.28 2.67 5.61
Average.......................... 9.31 3.59 5.73
*Moody's Corporate A Bond Index Yields are year-end yields. Investors cannot
invest directly in an index.
**Inflation rate is demonstrated by annual rates of the Consumer Price Index
(CPI).
The Investment Grade Fund may invest up to 25% of its portfolio in debt
securities with lower ratings or in unrated securities that are of comparable
quality. The Fund, however, will not invest (i) in any debt securities rated
lower than B by Moody's or S&P, (ii) in any equity securities of an issuer if a
majority of the debt securities of such issuer is rated lower than B by Moody's
or S&P, or (iii) in any unrated debt securities that the Fund's investment
manager considers to be of lower equivalent quality than securities rated B by
Moody's or S&P. See "What Are the Funds' Potential Risks? - High Yield
Securities."
CORPORATE QUALIFIED FUND
The Corporate Qualified Fund is specially designed for corporate investors,
including banks and savings and loan associations, that may not deduct certain
interest expenses under tax laws and that may be seeking an enhanced investment
return through use of the corporate dividends-received deduction. As stated in
its Prospectus, the Corporate Qualified Fund may invest in adjustable rate and
auction rate preferred stocks. The characteristics of these two types of
preferred stocks are discussed below.
Adjustable Rate Preferred Stocks. In May 1982, several major U.S. corporations,
including some of the largest U.S. bank holding companies, began issuing
preferred stocks with cumulative and adjustable dividends. These securities have
specific characteristics differing from other types of preferred stocks.
Regardless of the issuer, adjustable rate preferred stocks generally have the
same terms and provisions, except for the specific adjustment formula used to
determine their quarterly dividend rate. Such formulas vary in regard to (i) the
fixed amount of premium or discount in relation to a particular U.S. Treasury
instrument rate and (ii) the minimum and maximum range within which the dividend
rate may fluctuate. The rate for each quarterly dividend period is referred by
all issuers as the "Applicable Rate."
The Applicable Rate is determined by the issuer at the beginning of each
quarterly dividend period. It is calculated, in part, by adding or subtracting
(depending upon the terms of the issue) either a fixed number of basis points (a
basis point being equal to 1/100 of 1%) or a percentage calculation to the
highest of three specified rates, namely a "Treasury Bill Rate," a "10-Year
Constant Maturity Rate" and a "20-Year Constant Maturity Rate."
The Treasury Bill Rate is based upon the average market discount rate of
three-month U.S. Treasury bills. The other rates are based upon the average
yields to maturity of ten-year and twenty-year U.S. Treasury fixed interest rate
securities. Such data is published weekly by the Federal Reserve Board, and the
issuers of the adjustable rate preferred stocks, in setting their next
Applicable Rate, generally use the two most recent weekly figures published
immediately prior to the 10 calendar days preceding a new quarterly dividend
period. The premium or discount to be added to or subtracted from the highest of
the three rates is fixed by the issuer at the time the adjustable rate preferred
stocks are issued and cannot be changed. At issuance, however, the issuer sets a
maximum and minimum Applicable Rate which may be paid for any dividend period.
While most issues of adjustable rate preferred stocks are rated by the major
rating services, the Fund may invest in any adjustable rate preferred stock
regardless of its rating or non-rating. The Fund's investment manager will,
however, consider such rating or non-rating as one of the factors in selecting
issues for the Fund's portfolio. Generally, the Fund will invest in adjustable
rate preferred stocks of issuers whose long-term debt securities are either
rated in one of the four highest rating categories of Moody's or S&P or, if
unrated, are of comparable quality as determined by the Fund's investment
manager. See the Appendix for a further discussion of ratings.
Auction Rate Preferred Stocks. Auction rate preferred stocks are similar to
short-term, corporate money market instruments in that the auction rate
preferred stockholder normally has the opportunity to liquidate at par every 49
days, at which time the dividend rate is reset. Generally, the maximum dividend
rate ranges from 110% to 250%, depending on quality, of the 60-day "AA"
Composite Commercial Paper Rate and the minimum rate is 56% of the same rate. In
this type of auction, bids are made by broker-dealers, either as agent for their
customers or for their own account, for a certain amount of shares at a
specified yield. The dividend rate set by the auction is the lowest rate that
includes enough bids to cover all the shares being sold. This procedure is
designed to enable auction rate preferred shares to be purchased and sold at
their par value.
The shares generally are redeemable at par value plus accrued dividends at the
option of the issuer if certain conditions are met regarding the dividend rate
set by the auction.
Auction rate preferred shares may be purchased or sold by the Fund pursuant to a
bid or a sell order placed in an auction. If there are insufficient bids to
cover all sell orders at any auction, then the sellers, which may include the
Fund, may only be able to sell a portion or none of the shares submitted for
sale. To date, most, but not all, auctions have included sufficient bids to
accommodate all shares submitted for sale. If a future auction at which the Fund
has submitted shares for sale fails to contain sufficient bids, the Fund's
investment manager believes that the Fund would be able to sell its shares in
the marketplace.
The Fund may at any time sell its auction rate preferred stock to another
purchaser outside of the auction process at a price which will reflect the
share's par value plus a mutually agreed upon yield factor. Such purchaser must
have signed a Purchaser's Letter to the designated depository stating that: (a)
the Purchaser understands the terms of the auction and agrees to participate
under such terms; (b) the Purchaser will sell, transfer, or dispose of the
shares of the auction rate preferred stock only pursuant to the terms regarding
the issue; and (c) the ownership of the shares will be maintained in book-entry
form pursuant to the provisions in the issuer's prospectus.
While all current issues of auction rate preferred stocks are rated by the major
rating services, the Fund may invest in any auction rate preferred stock
regardless of its rating or future non-rating. The Fund's investment manager
will, however, consider the rating or non-rating as one of the factors in
selecting issues for the Fund's portfolio. Generally, the Fund will only invest
in auction rate preferred stocks of issuers whose long-term debt securities are
either rated in one of the four highest rating categories of Moody's or S&P or,
if unrated, are of comparable quality as determined by the Fund's investment
manager. Please see the Appendix for a discussion of these ratings.
RISING DIVIDENDS FUND
Foreign Securities. As noted in its Prospectus, the Rising Dividends Fund may
invest in foreign securities. When purchasing foreign securities, the Fund will
ordinarily purchase securities which are traded in the U.S. or purchase
sponsored or unsponsored American Depositary Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to receive securities
of a foreign issuer deposited with that bank or a correspondent bank. A
sponsored ADR is an ADR in which establishment of the issuing facility is
brought about by the participation of the issuer and the depositary institution
pursuant to a deposit agreement which sets out the rights and responsibilities
of the issuer, the depositary and the ADR holder. Under the terms of most
sponsored arrangements, depositaries agree to distribute notices of shareholder
meetings and voting instructions, thereby ensuring that ADR holders will be able
to exercise voting rights through the depositary. An unsponsored ADR has no
sponsorship by the issuing facility and, additionally, more than one depositary
institution may be involved in its issuance. It typically clears, however,
through the Depositary Trust Company and therefore, there should be no delays in
selling the security or in obtaining dividends. Although not required, the
depositary normally requests a letter of non-objection from the issuer. The
depositary is not required to distribute notices of shareholders' meetings or
financial information to the purchaser. The Fund may also purchase the
securities of foreign issuers directly in foreign markets so long as, in the
investment manager's judgment, an established public trading market exists
(there are a sufficient number of shares traded regularly relative to the number
of shares to be purchased by the Fund).
Any investments made by the Fund in foreign securities where delivery takes
place outside the U.S. will be made in compliance with applicable U.S. and
foreign currency restrictions and other tax laws and laws limiting the amount
and types of foreign investments. Changes of governmental administrations,
economic or monetary policies in the U.S. or abroad, or changed circumstances in
dealings between nations could result in investment losses for the Fund and
could adversely affect the Fund's operations. The Fund's purchase of securities
in foreign countries will involve currencies of the U.S. and of foreign
countries; consequently, changes in exchange rates, currency convertibility and
repatriation may favorably or adversely affect the Fund. Although current
regulations do not, in the opinion of the Fund's investment manager, seriously
limit the Fund's investment activities, if such regulations are changed in the
future, they may restrict the ability of the Fund to make its investments or
impair the liquidity of the Fund's investments.
Securities which are acquired by the Fund outside of the U.S. and which are
publicly traded in the U.S. or on a foreign securities exchange or in a foreign
securities market are not considered by the Fund to be illiquid assets if (a)
the Fund reasonably believes it can readily dispose of the securities for cash
in the U.S. or foreign market or (b) current market quotations are readily
available. The Fund will not acquire the securities of foreign issuers outside
of the U.S. under circumstances where, at the time of acquisition, the Fund has
reason to believe that it could not resell the securities in a public trading
market. Investors should recognize that foreign securities are often traded with
less frequency and volume, and therefore may have greater price volatility, than
is the case with many U.S. securities. Notwithstanding the fact that the Fund
intends to acquire the securities of foreign issuers only where there are public
trading markets, investments by the Fund in the securities of foreign issuers
may tend to increase the risks with respect to the liquidity of the Fund's
portfolio and the Fund's ability to meet a large number of shareholders'
redemption requests should there be economic or political turmoil in a country
in which the Fund has its assets invested or should relations between the U.S.
and a foreign country deteriorate markedly.
ADDITIONAL INFORMATION RELEVANT TO ALL FUNDS
Lending of Portfolio Securities. As noted in the Prospectuses, each Fund is
permitted to lend up to 30% of its portfolio securities but each currently
intends to limit such activity to no more than 5% of each Fund's assets. Under
this arrangement, the borrower must deposit with a Fund's custodian bank
collateral with an initial market value of at least 102% of the initial market
value of the securities loaned, including any accrued interest, with the value
of the collateral and loaned securities marked-to-market daily to maintain
collateral coverage of at least 100%. Such collateral shall consist of cash,
securities issued by the U.S. government, its agencies or instrumentalities, or
irrevocable letters of credit. The lending of securities is a common practice in
the securities industry. A Fund may engage in security loan arrangements with
the primary objective of increasing the Fund's income either through investing
the cash collateral in short-term, interest bearing obligations or by receiving
a loan premium from the borrower. Under the securities loan agreement, the Fund
continues to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially.
Each Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the income earned on the cash to
the borrower or placing broker. Loans are subject to termination at the option
of the Fund or the borrower at any time, including when necessary to enable such
Fund to be the record owner for each dividend paid by the issuer thereof. A Fund
would not have the right to vote securities on loan, but would terminate the
loan and regain the right to vote if that were considered important with respect
to the investment.
WHAT ARE THE FUNDS' POTENTIAL RISKS?
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High Yield Securities. The market value of lower rated, fixed-income securities
and unrated securities of comparable quality, commonly known as junk bonds,
tends to reflect individual developments affecting the issuer to a greater
extent than the market value of higher rated securities, which react primarily
to fluctuations in the general level of interest rates. Lower rated securities
also tend to be more sensitive to economic conditions than higher rated
securities. These lower rated fixed-income securities are considered by the
rating agencies, on balance, to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. Even bonds rated BBB by S&P or Baa
by Moody's, ratings which are considered investment grade, possess some
speculative characteristics.
Issuers of high yielding, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yielding securities may experience financial stress.
During these periods, such issuers may not have sufficient cash flow to meet
their interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific developments affecting
the issuer, the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
High yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Investment
Grade Fund. The premature disposition of a high yielding security due to a call
or buy-back feature, the deterioration of the issuer's creditworthiness, or a
default may also make it more difficult for the Fund to manage the timing of its
receipt of income, which may have tax implications. The Fund may be required
under the Code and U.S. Treasury regulations to accrue income for income tax
purposes on defaulted obligations and to distribute such income to the Fund's
shareholders even though the Fund is not currently receiving interest or
principal payments on such obligations. In order to generate cash to satisfy any
or all of these distribution requirements, the Fund may be required to dispose
of portfolio securities that it otherwise would have continued to hold or to use
cash flows from other sources such as the sale of Fund shares.
Factors adversely impacting the market value of high yielding securities could
adversely impact the net asset value of the Investment Grade Fund to the extent
of any such securities held in its portfolio. In addition, the Fund could incur
additional expenses to the extent it is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings. The Fund will
rely on the investment manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, the investment manager
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
The Fund may have difficulty disposing of certain high yielding securities
because there may be a thin trading market for a particular security at any
given time. The market for lower rated, fixed-income securities generally tends
to be concentrated among a smaller number of dealers than is the case for
securities which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and other institutional
buyers, rather than individuals. To the extent the secondary trading market for
a particular high yielding, fixed-income security does exist, it is generally
not as liquid as the secondary market for higher rated securities. Reduced
liquidity in the secondary market may have an adverse impact on market price and
the Fund's ability to dispose of particular issues, when necessary, to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more difficult for the
Fund to obtain market quotations based on actual trades for purposes of valuing
the Fund's portfolio. Current values for these high yield issues are obtained
from pricing services and/or a limited number of dealers and may be based upon
factors other than actual sales.
The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recession, which began in
1990, disrupted the market for high yielding securities and the ability of
issuers of such securities to meet their obligations. Although the economy has
improved considerably and high yield securities have been more consistent
performers since that time, there is no guarantee that the adverse effects
previously experienced will not occur again. Factors adversely impacting the
market value of high yielding securities will adversely impact the Fund's net
asset value. For example, the highly publicized defaults of some high yield
issuers during 1989 and 1990, and concerns regarding a sluggish economy which
continued into 1993, depressed the prices for many of these securities. However,
while market prices may be temporarily depressed due to these factors, the
ultimate security price will generally reflect the true operating results of the
issuer The Fund will rely on the investment manager's judgment, analysis and
experience in evaluating the creditworthiness of an issuer. In this evaluation,
the investment manager will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic conditions and trends,
its operating history, the quality of the issuer's management and regulatory
matters.
Foreign Securities. Investments in debt securities of foreign governments
present special risks and considerations not typically associated with
investments in securities issued by the U.S. government. Such risks include:
reductions of income as a result of foreign taxes; fluctuation in value of
foreign portfolio investments due to changes in currency rates and control
regulations (e.g., currency blockage); transaction charges for currency
exchange; lack of information about foreign governments; lack of uniform
accounting, auditing and financial reporting standards comparable to those
applicable to the U.S. government; less volume on foreign exchanges than on U.S.
exchanges; greater volatility and less liquidity on foreign markets than in the
U.S.; less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulty in commencing lawsuits; higher brokerage commission
rates than in the U.S.; increased risk of delays in settlement of portfolio
transactions or loss of certificates for portfolio securities because of the
lesser speed and reliability of mail service; possibilities of expropriation,
confiscatory taxation, political, financial or social instability or adverse
diplomatic developments; and differences (which may be favorable or unfavorable)
between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be reimposed.
Options. One of the principal risks associated with the Fund's options
activities is the risk that a liquid secondary market on an options exchange may
not exist for any particular option at any particular time, and for some options
no secondary market may exist on an exchange or elsewhere. If the Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or dispose
of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and may incur transaction costs upon the purchase
or sale of underlying securities. The Fund expects to purchase and write only
exchange traded options until such time as its investment manager determines
that the over-the-counter market in options is sufficiently developed and
appropriate disclosure is furnished to prospective and existing shareholders.
Transactions in options are generally considered "derivative securities."
Options on futures contracts. In addition to the risks which apply to all
options transactions, there are several special risks relating to options on
futures contracts. The principal risk, as stated in the Fund's Prospectus and
discussed above in connection with options on securities, is the possibility
that no liquid market for the option will exist to permit the Fund to establish
and close out its positions. Transactions in options on futures are generally
considered "derivative securities."
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
Each Fund has adopted the following restrictions as fundamental policies (unless
otherwise noted), which means that they may not be changed without the approval
of a majority of the outstanding voting securities of the affected Fund. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), a "vote of a
majority of the outstanding voting securities" of the Fund means the affirmative
vote of the lesser of (i) more than 50% of the outstanding shares of the Fund or
(ii) 67% or more of the shares of the Fund present at a shareholder meeting if
more than 50% of the outstanding shares of the Fund are represented at the
meeting in person or by proxy. A Fund may not:
1. Invest in the securities of any one issuer (other than the U.S. government
and its agencies and instrumentalities), if immediately after and as a result of
such investment (a) more than 5% of the total assets of the Fund would be
invested in such issuer or (b) more than 10% of the outstanding voting
securities of such issuer would be owned by the Fund.
2. Make loans to others, except (a) through the purchase of debt securities in
accordance with its investment objectives and policies, (b) through the lending
of its portfolio securities as described above and in its Prospectus, or (c) to
the extent the entry into a repurchase agreement is deemed to be a loan.
3. (a) Borrow money, except temporarily for extraordinary or emergency purposes
from a bank and then not in excess of 15% of its total assets (at the lower of
cost or fair market value) or (b) mortgage, pledge or hypothecate any of its
assets except in connection with any such borrowings. Any such borrowing will be
made only if immediately thereafter there is an asset coverage of at least 300%
of all borrowings, and no additional investments may be made while any such
borrowings are in excess of 5% of total assets.
4. Purchase securities on margin, sell securities short, participate on a joint
or joint and several basis in any securities trading account, or underwrite
securities. (Does not preclude a Fund from obtaining such short-term credit as
may be necessary for the clearance of purchases and sales of its portfolio
securities.)
5. Buy or sell interests in oil, gas or mineral exploration or development
programs, or real estate. (Does not preclude investments in marketable
securities of companies engaged in such activities.)
6. Purchase or hold securities of any issuer if, at the time of purchase or
thereafter, any of the trustees or officers of the Trust or the Funds'
investment manager owns beneficially more than one-half of 1%, and all such
trustees or officers holding more than one-half of 1% together own beneficially
more than 5% of the issuer's securities.
7. Invest more than 5% of the value of its total assets in securities of any
issuer which has not had a record, together with predecessors, of at least three
years of continuous operation. (This is an operating policy which may be changed
without shareholder approval.)
8. Purchase or sell commodities or commodity contracts or invest in put, call,
straddle or spread options. (Does not preclude bona fide hedging transactions by
the Investment Grade Fund, including the purchase or sale of options and options
on futures contracts.)
9. With respect to the Investment Grade Fund and Corporate Qualified Fund,
invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets. With
respect to the Rising Dividends Fund, it may invest up to 10% of its assets in
the securities of other investment companies, subject to the limitations of the
1940 Act, or more as they may be acquired pursuant to a merger, consolidation or
acquisition of assets. (This is an operating policy which may be changed without
shareholder approval.)
10. Invest more than 10% of its assets in securities with legal or contractual
restrictions on resale, securities which are not readily marketable, and
repurchase agreements with more than seven days to maturity.
11. Invest in any issuer for purposes of exercising control or management.
12. Invest more than 25% of the market value of its assets in the securities of
companies engaged in any one industry. (Does not apply to investment in the
securities of the U.S. government, its agencies or instrumentalities.)
13. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit any Fund from (a) making any
permitted borrowings, mortgages or pledges, or (b) entering into repurchase
transactions. (This is an operating policy which may be changed without
shareholder approval.)
Other Policies. Pursuant to an undertaking given to the Texas State Securities
Board, each Fund may not invest in excess of 5% of the value of a Fund's net
assets in warrants. No more than 2% of the value of a Fund's net assets may be
invested in warrants (valued at the lower of cost or market) which are not
listed on the New York or American Stock Exchanges. Warrants acquired by a Fund
in units or attached to securities will be deemed to be without value.
OFFICERS AND TRUSTEES
- --------------------------------------------------------------------------------
The Board of Trustees ("Board") has the responsibility for the overall
management of the Trust, including general supervision and review of its
investment activities. The trustees, in turn, elect the officers of the Trust
who are responsible for administering the day-to-day operations of the Trust.
The affiliations of the officers and trustees and their principal occupations
for the past five years are listed below. Trustees who are deemed to be
"interested persons" of the Trust, as defined in the 1940 Act, are indicated by
an asterisk (*).
Positions and Offices Principal Occupations During
Name, Age and Address with the Trust During Past Five Years
- --------------------------------------------------------------------------------
Frank T. Crohn (71) Trustee
7251 West Palmetto Park Road
Boca Raton, FL 33433
Chairman and Chief Executive Officer, Financial Benefit Life Insurance Company
and Financial Benefit Group, Inc.; Director, Unity Mutual Life Insurance
Company; and trustee of three of the investment companies in the Franklin Group
of Funds.
- --------------------------------------------------------------------------------
* William J. Lippman (70) President
One Parker Plaza and Trustee
Fort Lee, NJ 07024
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.
- --------------------------------------------------------------------------------
Charles Rubens II (65) Trustee
18 Park Road
Scarsdale, NY 10583
Private Investor; and trustee of three of the investment companies in the
Franklin Group of Funds.
- --------------------------------------------------------------------------------
Leonard Rubin (70) Trustee
501 Broad Avenue
Ridgefield, NJ 07657
Chairman of the Board, Carolace Embroidery Co., Inc.; President, F.N.C.
Textiles, Inc.; Vice President, Trimtex Co. Inc.; and trustee of three of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Harmon E. Burns (50) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Martin L. Flanagan (35) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer of 61 of the investment companies in the Franklin Templeton Group of
Funds.
- --------------------------------------------------------------------------------
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies
in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Diomedes Loo-Tam (56) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Edward V. McVey (58) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
- --------------------------------------------------------------------------------
R. Martin Wiskemann (69) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 20 of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the Funds' investment manager. Trustees
not affiliated with the investment manager ("nonaffiliated trustees") are
currently paid fees of $1,800 per month plus $900 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds.
Number of
Total Fees Boards in the
Total Fees Received from the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from the Trust* Group of Funds** Which Each Serves***
- -------------------------------------------------------------------------------
Frank T. Crohn......... $10,800 $15,600 3
Charles Rubens, II..... 11,700 15,600 3
Leonard Rubin.......... 11,700 15,600 3
*For the fiscal year ended September 30, 1995.
**For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.
Nonaffiliated trustees are reimbursed for expenses incurred in connection with
attending board meetings, paid pro rata by each fund in the Franklin Templeton
Group of Funds for which they serve as director, trustee or managing general
partner. No officer or trustee received any other compensation directly from the
Trust. Certain officers or directors who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
As of November 3, 1995, the officers and trustees, as a group, owned of record
and beneficially approximately 155,402 shares of Class I of the Rising Dividends
Fund (approximately 1% of its total outstanding shares) and 1,862 shares of the
Investment Grade Fund (less than 1% of its total outstanding shares). Many of
the Trust's trustees also own shares in various of the other funds in the
Franklin Templeton Group of Funds.
From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
Investment Advisory and Other Services
- --------------------------------------------------------------------------------
The investment manager of each of the Funds is Franklin Advisers, Inc.
("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company whose shares are
listed on the New York Stock Exchange (the "Exchange"). Resources owns several
other subsidiaries that are involved in investment management and shareholder
services.
Pursuant to separate management agreements for each Fund, the Manager provides
investment research and portfolio management services, including the selection
of securities for each Fund to purchase, hold or sell and the selection of
brokers through whom each Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of the Trust's
Board of Trustees (the "Board") to whom the Manager renders periodic reports of
each Fund's investment activities. Under the terms of the management agreements,
the Manager provides office space and office furnishings, facilities and
equipment required for managing the business affairs of each Fund; maintains all
internal bookkeeping, clerical, secretarial and administrative personnel and
services; and provides certain telephone and other mechanical services. The
Manager is covered by fidelity insurance on its officers, directors and
employees for the protection of the Trust. Please see the Statement of
Operations in the financial statements included in the Fund's Annual Report to
Shareholders dated September 30, 1995.
The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The Manager
may give advice and take action with respect to any of the other funds it
manages, or for its own account, which may differ from action taken by the
Manager on behalf of the Funds. Similarly, with respect to the Funds, the
Manager is not obligated to recommend, purchase or sell, or to refrain from
recommending, purchasing or selling any security that the Manager and access
persons, as defined under the 1940 Act, may purchase or sell for its or their
own account or for the accounts of any other fund. Furthermore, the Manager is
not obligated to refrain from investing in securities held by the Fund or other
funds which it manages or administers. Of course, any transactions for the
accounts of the Manager and other access persons will be made in compliance with
the Fund's Code of Ethics.
Pursuant to their respective management agreements, the Corporate Qualified Fund
and the Investment Grade Fund are each obligated to pay the Manager a monthly
fee computed at the annual rate of 0.50% of average daily net assets of each
Fund on the first $500 million of net assets, 0.45% on the next $500 million and
0.40% on net assets in excess of $1 billion. Pursuant to its management
agreement, the Rising Dividends Fund is obligated to pay the Manager a monthly
fee computed at the annual rate of 0.75% of average daily net assets of the Fund
on the first $500 million of net assets, 0.625% on the next $500 million and
0.50% on net assets in excess of $1 billion. The management agreements also
provide for the payment of $40,000 per year by each Fund to Advisers for the
provision of certain accounting, bookkeeping and recordkeeping functions for
each Fund. Each class of the Rising Dividend Fund will pay its share of the fees
as determined by the proportion of the Fund that it represents.
The management agreements specify that the management fee will be reduced to the
extent necessary to comply with the most stringent limits on the expenses which
may be borne by each Fund as prescribed by any state in which a Fund's shares
are offered for sale. The most stringent current limit requires the Manager to
reduce or eliminate its fee to the extent that aggregate operating expenses of
each Fund (excluding interest, taxes, brokerage commissions and extraordinary
expenses such as litigation costs) would otherwise exceed in any fiscal year
2.5% of the first $30 million of average net assets of a Fund, 2.0% of the next
$70 million of average net assets of a Fund and 1.5% of average net assets of a
Fund in excess of $100 million. Expense reductions have not been necessary based
on state requirements.
Management fees paid by the Funds for the past three fiscal years were as
follows:
Fiscal Year September 30
- --------------------------------------------------------------------------------
Fund 1993* 1994 1995
- --------------------------------------------------------------------------------
Corporate
Qualified
Fund......... $ 122,313 $ 164,449 $ 141,798
Rising
Dividends
Fund......... 1,746,035 2,279,672 1,866,215
Investment
Grade
Fund......... 136,977 155,866 144,062
*Covers only a nine-month period due to a change in the Trust's fiscal year end.
The management agreements are in effect until March 31, 1996. Thereafter, they
may continue in effect for successive annual periods providing such continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of a Fund's outstanding voting securities, and in
either event by a majority vote of the trustees who are not parties to the
management agreements or interested persons of any such party (other than as
trustees of the Trust), cast in person at a meeting called for that purpose.
Each management agreement may be terminated without penalty at any time by the
Board or by a vote of the holders of a majority of a Fund's outstanding shares,
or by the Manager on 60 days' written notice and will automatically terminate in
the event of its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent for the Trust and
acts as the Trust's transfer agent and dividend-paying agent. Investor Services
is compensated on the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of each
Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720, acts as
custodian in connection with transfer services through bank automated clearing
houses. The custodians do not participate in decisions relating to the purchase
and sale of portfolio securities.
Tait, Weller & Baker, Two Penn Center Plaza, Suite 700, Philadelphia,
Pennsylvania 19102, are the Trust's independent auditors. During the fiscal year
ended September 30, 1995, their auditing services consisted of rendering an
opinion on the financial statements of the Trust included in the Trust's Annual
Report to Shareholders dated September 30, 1995.
How Do the Funds Purchase
Securities For Their Portfolios?
- --------------------------------------------------------------------------------
Under the current management agreements, the selection of brokers and dealers to
execute transactions in each Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreements and any
directions which the Board may give.
When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions done on a
securities exchange, the amount of commission paid by a Fund is negotiated
between the Manager and the broker executing the transaction. The Manager seeks
to obtain the lowest commission rate available from brokers that are felt to be
capable of efficient execution of the transactions. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of such
transactions. These opinions are formed on the basis of, among other things, the
experience of these individuals in the securities industry and information
available to them concerning the level of commissions being paid by other
institutional investors of comparable size. The Manager will ordinarily place
orders for the purchase and sale of over-the-counter securities on a principal
rather than agency basis with a principal market maker unless, in the opinion of
the Manager, a better price and execution can otherwise be obtained. Purchases
of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask price. The Trust seeks to obtain
prompt execution of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in a Fund's best
interest, the Manager may place portfolio transactions with brokers who provide
the types of services described below, even if it means the Fund will pay a
higher commission than if no weight were given to the broker's furnishing of
these services. This will be done only if, in the opinion of the Manager, the
amount of any additional commission is reasonable in relation to the value of
the services. Higher commissions will be paid only when the brokerage and
research services received are bona fide and produce a direct benefit to a Fund
or assist the Manager in carrying out its responsibilities to a Fund, or when it
is otherwise in the best interest of a Fund to do so, whether or not such
services may also be useful to the Manager in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to each of the Funds,
specifically including the quotations necessary to determine the value of a
Fund's net assets, in such amount of total brokerage as may reasonably be
required in light of such services, and through brokers who supply research,
statistical and other data to the Funds and Manager in such amount of total
brokerage as may reasonably be required.
It is not possible to place a dollar value on the special executions or on the
research services received by the Manager from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, the Manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. Provided that
the Trust's officers are satisfied that the best execution is obtained, the sale
of shares of the Funds may also be considered as a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when a Fund tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of a Fund, any portfolio securities
tendered by the Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
a Fund's management agreement will be reduced by the amount of any fees received
by Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as a Fund is concerned. In other cases it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to a Fund. Brokerage commissions paid by the
Funds for the past three fiscal years were as follows:
Fiscal Year September 30
- --------------------------------------------------------------------------------
Fund 1993* 1994 1995
- --------------------------------------------------------------------------------
Corporate
Qualified
Fund......... 0 $ 498 $ 204
Rising
Dividends
Fund......... $227,754 219,703 140,209
Investment
Grade
Fund......... 0 0 0
*Covers a nine-month period.
As of September 30, 1995, the Funds did not own securities of their regular
broker-dealers.
How Do I Buy and Sell Shares?
- --------------------------------------------------------------------------------
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of a Fund must be denominated in U.S. dollars. Each Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) honor
the transaction or make adjustments to your account for the transaction as of a
date and with a foreign currency exchange factor determined by the drawee bank.
In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Funds to
complete an exchange will be effected at the close of business on the day the
request for exchange is received in proper form at the net asset value then
effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus for each Fund.
If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to a Fund, the Fund may impose a $10 charge
against your account for each returned item.
Dividend checks returned to a Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.
The Funds may deduct from your account the costs of their efforts to locate you
if mail is returned as undeliverable or the Funds are otherwise unable to locate
you or verify your current mailing address. These costs may include a percentage
of the account when a search company charges a percentage fee in exchange for
its location services.
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors or one of its affiliates to help defray expenses of
maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
Class I shares of the Funds may be offered to investors in Taiwan through
securities firms known locally as Securities Investment Consulting Enterprises.
In conformity with local business practices in Taiwan, Class I shares will be
offered with the following schedule of sales charges:
Sales
Size of Purchase - U.S. dollars Charge
- --------------------------------------------------------------------------------
Up to $100,000................................. 3%
$100,000 to $1,000,000......................... 2%
Over $1,000,000................................ 1%
Purchases and Redemptions
through Securities Dealers
Orders for the purchase of shares of a Fund received in proper form prior to the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any business
day that the Exchange is open for trading and promptly transmitted to the Fund
will be based upon the public offering price determined that day. Purchase
orders received by securities dealers or other financial institutions after the
scheduled close of the Exchange will be effected at the Fund's public offering
price on the day it is next calculated. The use of the term "securities dealer"
herein shall include other financial institutions which, either directly or
through affiliates, have an agreement with Distributors to handle customer
orders and accounts with the Fund. Such reference, however, is for convenience
only and does not indicate a legal conclusion of capacity.
Orders for the redemption of shares are effected at net asset value subject to
the same conditions concerning time of receipt in proper form. It is the
securities dealer's responsibility to transmit the order in a timely fashion and
any loss to you resulting from the failure to do so must be settled between you
and your securities dealer.
Other Payments to Securities Dealers - Class I
of the Investment Grade Fund and the Rising Dividends Fund Only
As discussed in the Prospectuses of the Investment Grade Fund and the Rising
Dividends Fund under "How Do I Buy Shares? General," either Distributors or one
of its affiliates may make payments, out of its own resources, to securities
dealers who initiate and are responsible for purchases of Class I shares made at
net asset value by certain trust companies and trust departments of banks,
certain designated retirement plans (excluding IRA and IRA Rollovers), certain
non-designated plans, and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more, as described below.
Distributors may make these payments in the form of contingent advance payments,
which may be recovered from the securities dealer or set off against other
payments due to the securities dealer in the event shares are redeemed within 12
months of the calendar month of purchase. Other conditions may apply. All terms
and conditions may be imposed by an agreement between Distributors, or one of
its affiliates, and the securities dealer.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to securities dealers who initiate and are responsible for
purchases of Class I shares of made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1% on sales of $1 million
but less than $2 million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales of $100
million or more; and for purchases of Class I shares made at net asset value by
certain non-designated retirement plans : 0.75% on sales of $1 million but less
than $2 million, plus 0.60% on sales of $2 million but less than $3 million,
plus 0.50% on sales of $3 million but less than $50 million, plus 0.25% on sales
of $50 million but less than $100 million, plus 0.15% on sales of $100 million
or more. These payment breakpoints are reset every 12 months for purposes of
additional purchases. With respect to purchases of Class I shares made at net
asset value by certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan assets
of $10 million or more, either Distributors or one of its affiliates, out of its
own resources, may pay up to 1% of the amount invested.
Letter of Intent
You may qualify for a reduced sales charge on the purchase of Class I shares of
the Funds, as described in the Prospectuses. At any time within 90 days after
the first investment which you want to qualify for a reduced sales charge, you
may file with the Fund a signed Shareholder Application with the Letter of
Intent (the "Letter") section completed. After the Letter is filed, each
additional investment will be entitled to the sales charge applicable to the
level of investment indicated on the Letter. Sales charge reductions based upon
purchases in more than one of the Franklin Templeton Funds will be effective
only after notification to Distributors that the investment qualifies for a
discount. Your holdings in the Franklin Templeton Funds, including Class II
shares, acquired more than 90 days before the Letter is filed, will be counted
towards completion of the Letter but will not be entitled to a retroactive
downward adjustment in the sales charge. Any redemptions you make, unless by a
designated retirement plan, during the 13-month period will be subtracted from
the amount of the purchases for purposes of determining whether the terms of the
Letter have been completed. If the Letter is not completed within the 13-month
period, there will be an upward adjustment of the sales charge, depending upon
the amount actually purchased (less redemptions) during the period. The upward
adjustment does not apply to designated retirement plans. If you execute a
Letter prior to a change in the sales charge structure for the Fund, you will be
entitled to complete the Letter at the lower of the new sales charge structure
or the sales charge structure in effect at the time the Letter was filed.
As mentioned in the Prospectus for each Fund, five percent (5%) of the amount of
the total intended purchase will be reserved in Class I shares of the Fund
registered in your name. This policy of reserving shares does not apply to a
designated retirement plan. If the total purchases, less redemptions, equal the
amount specified under the Letter, the reserved shares will be deposited to an
account in your name or delivered to you or your order. If the total purchases,
less redemptions, exceed the amount specified under the Letter and is an amount
which would qualify for a further quantity discount, a retroactive price
adjustment will be made by Distributors and the securities dealer through whom
purchases were made pursuant to the Letter (to reflect such further quantity
discount) on purchases made within 90 days before and on those made after filing
the Letter. The resulting difference in offering price will be applied to the
purchase of additional shares at the offering price applicable to a single
purchase or the dollar amount of the total purchases. If the total purchases,
less redemptions, are less than the amount specified under the Letter, you will
remit to Distributors an amount equal to the difference in the dollar amount of
sales charge actually paid and the amount of sales charge that would have
applied to the aggregate purchases if the total of such purchases had been made
at a single time. Upon such remittance, the reserved shares held for your
account will be deposited to an account in your name or delivered to you or your
order. If within 20 days after written request the difference in sales charge is
not paid, the redemption of an appropriate number of reserved shares to realize
the difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be forwarded
to you.
If a Letter is executed on behalf of a designated retirement plan, the level and
any reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
Redemptions in Kind
Each Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during any
90-day period to the lesser of $250,000 or 1% of the value of the Fund's net
assets at the beginning of the 90-day period. This commitment is irrevocable
without the prior approval of the Securities and Exchange Commission ("SEC"). In
the case of redemption requests in excess of these amounts, the trustees reserve
the right to make payments in whole or in part in securities or other assets of
the Fund, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of the Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute the Fund's net assets. Should the Fund do so, you may incur brokerage
fees in converting the securities to cash. The Funds do not intend to redeem
illiquid securities in kind. Should it happen, however, you may not be able to
recover your investment in a timely manner and you may incur brokerage costs in
selling the securities.
Redemptions by the Funds
Due to the relatively high cost of handling small investments, each Fund
reserves the right to involuntarily redeem your shares at net asset value, if
your account has a value of less than one-half of the initial minimum investment
required, but only where the value of your account has been reduced by the prior
voluntary redemption of shares. Until further notice, it is the present policy
of each Fund not to exercise this right with respect to any shareholder whose
account has a value of $50 or more in the Rising Dividends Fund or the
Investment Grade Fund and $12,500 in the Corporate Qualified Fund. In any event,
before a Fund redeems your shares and sends you the proceeds, it will notify you
that the value of the shares in your account is less than the minimum amount and
allow you 30 days to make an additional investment in an amount which will
increase the value of your account to at least the minimum investment required
($100 in the Rising Dividends Fund or the Investment Grade Fund and $25,000 in
the Corporate Qualified Fund).
Reinvestment Date
Shares acquired through the reinvestment of dividends will be purchased at the
net asset value determined on the business day following the dividend record
date (sometimes known as the "ex-dividend date"). The processing date for the
reinvestment of dividends may vary from month to month and does not affect the
amount or value of the shares acquired.
Reports to Shareholders
The Funds send annual and semiannual reports regarding their performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.
Special Services
The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Funds. The
cost of these services is not borne by the Funds.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Funds on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Funds may reimburse Investor
Services an amount not to exceed the per account fee which the Funds normally
pay Investor Services. These financial institutions may also charge a fee for
their services directly to their clients.
How Are Fund Shares Valued?
- --------------------------------------------------------------------------------
As noted in the Prospectus, each Fund calculates the net asset value of each
class as of the scheduled close of the Exchange (generally 1:00 p.m. Pacific
time) each day that the Exchange is open for trading. As of the date of this
SAI, the Trust is informed that the Exchange observes the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of each Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
a Fund is its last sale price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, the options are valued within the range of the
current closing bid and ask prices if such valuation is believed to fairly
reflect the contract's market value.
The value of a foreign security is determined as of the close of trading on the
foreign exchange on which it is traded or as of the scheduled close of trading
on the Exchange, if that is earlier, and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and ask prices is used.
Occasionally events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of a Fund's net asset value. If events which materially affect the values of
these foreign securities occur during such period, then these securities will be
valued in accordance with procedures established by the Board.
Auction rate preferred stocks held by the Corporate Qualified Fund are valued
based upon quotations readily available in the marketplace, but if there are no
such readily available quotations with respect to a given security, such
security is valued based upon the market value of comparable securities, if any,
traded in the market place. As a practical matter, the value of auction rate
preferred stock in the secondary market has a consistent history, to date, of
trading at its par value plus an accrual of the dividend income to be received
on the issuer's next dividend payment date plus or minus some adjustment for
possible changes in interest rates or as a commission. Accordingly, when market
values based upon readily available market quotations are not determinable for
such securities held by the Fund, or for comparable securities, then such
securities may be valued at their par value plus an accrual of the dividends to
be received on the next dividend payment date. The Manager, on behalf of the
Board, may also assign a fair value different from par value (plus an accrual of
dividend income due) to any auction rate preferred stock for which a market
quotation is not readily available if the Manager believes the value of such
security has been materially affected by changes in the issuer's
creditworthiness or in the market place for trades in such security. The Board
continually reviews this procedure and makes such changes as it feels are needed
to enable the Fund to best reflect the daily fair value of its portfolio
securities.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times prior to
the scheduled close of the Exchange. The value of these securities used in
computing the net asset value of a Fund's shares is determined as of such times.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the scheduled close of the Exchange
which will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the values of these securities occur during such
period, then the securities will be valued at their fair value as determined in
good faith by the Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of trustees, the
Fund may utilize a pricing service, bank or securities dealer to perform any of
the above described functions.
Additional Information Regarding Taxation
- --------------------------------------------------------------------------------
As stated in the Prospectuses, each of the Funds has elected to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The trustees reserve the right not to maintain
the qualification of a Fund as a regulated investment company if they determine
such course of action to be beneficial to shareholders. In such case, a Fund
will be subject to federal and possibly state corporate taxes on its taxable
income and gains, and distributions to shareholders will be taxable to the
extent of the Fund's available earnings and profits.
Subject to the limitations discussed below, all or a portion of the income
distributions paid by a Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by a Fund
(generally, dividends from U.S. domestic corporations, the stock in which is not
debt-financed by the Fund and is held for at least a minimum holding period) is
less than 100% of its distributable income, then the amount of the Fund's
dividends paid to corporate shareholders which may be designated as eligible for
such deduction will not exceed the aggregate qualifying dividends received by
the Fund for the taxable year. The amount or percentage of income qualifying for
the corporate dividends-received deduction will be provided by a Fund annually
in a notice to shareholders mailed shortly after the end of the Fund's fiscal
year.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to a Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in October, November or December but which, for operational
reasons, may not be paid to you until the following January, will be treated for
tax purposes as if paid by a Fund and received by you on December 31 of the
calendar year in which they are declared. Each Fund intends as a matter of
policy to declare such dividends, if any, in December and to pay these dividends
in December or January to avoid the imposition of this tax, but does not
guarantee that its distributions will be sufficient to avoid any or all federal
excise taxes.
Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's basis
in the shares and the amount received, subject to the rules described below. If
such shares are a capital asset in the hands of the shareholder, gain or loss
will be capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.
All or a portion of the sales charge incurred in purchasing shares of a Fund
will not be included in the federal tax basis of such shares sold or exchanged
within ninety (90) days of their purchase (for purposes of determining gain or
loss with respect to such shares) if the sales proceeds are reinvested in the
Fund or in another fund in the Franklin Templeton Funds and a sales charge which
would otherwise apply to the reinvestment is reduced or eliminated. Any portion
of such sales charge excluded from the tax basis of the shares sold will be
added to the tax basis of the shares acquired in the reinvestment. You should
consult with your tax advisor concerning the tax rules applicable to the
redemption or exchange of Fund shares.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of a Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
The Investment Grade Income Fund's investment in options and futures contracts
are subject to many complex and special tax rules. For example, the Fund's
treatment of options on futures contracts, regulated futures contracts, and
certain foreign currency forward contracts and options thereon is generally
governed by Section 1256 of the Code.
Absent a tax election to the contrary, each such Section 1256 position held by
the Investment Grade Income Fund will be marked-to-market (i.e., treated as if
it were sold for fair market value) on the last business day of the Fund's
fiscal year, and all gain or loss associated with mark-to-market positions at
fiscal year end (except certain foreign currency gain or loss covered by Section
988 of the Code) will generally be treated as 60% long-term capital gain or loss
and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to
recognize taxable income without the corresponding receipt of cash. In order to
generate cash to satisfy the distribution requirements of the Code, the Fund may
be required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect both the
amount, character and timing of income distributed to you by the Fund.
When the Investment Grade Income Fund holds an option or contract which
substantially diminishes the Fund's risk of loss with respect to another
position of the Fund (as might occur in some hedging transactions), this
combination of positions could be treated as a "straddle" for tax purposes,
resulting in possible deferral of losses, adjustments in the holding periods of
Fund securities and conversion of short-term capital losses into long-term
capital losses. Certain tax elections exist for mixed straddles (i.e., straddles
comprised of at least one Section 1256 position and at least one non-Section
1256 position) which may reduce or eliminate the operation of these straddle
rules.
As a regulated investment company, a Fund is also subject to the requirement
that less than 30% of its annual gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months ("short-short income"). This requirement may limit a Fund's ability to
engage in options, straddles, hedging transactions and forward or futures
contracts because these transactions are often consummated in less than three
months, may require the sale of portfolio securities held less than three months
and may, as in the case of short sales of portfolio securities, reduce the
holding periods of certain securities within the Fund, resulting in additional
short-short income for a Fund.
The Investment Grade Income Fund will monitor its transactions in such options
and contracts and may make certain other tax elections in order to mitigate the
effect of the above rules and to prevent disqualification of the Fund as a
regulated investment company under Subchapter M of the Code.
Foreign exchange gains and losses realized by the Investment Grade Income Fund
in connection with certain transactions involving foreign currencies, foreign
currency payables or receivables, foreign currency-denominated debt securities,
foreign currency forward contracts, and options or futures contracts on foreign
currencies are subject to special tax rules which may cause such gains and
losses to be treated as ordinary income and losses rather than capital gains and
losses and may affect the amount and timing of the Fund's income or loss from
such transactions and in turn its distributions to you.
In order for a Fund to qualify as a regulated investment company, at least 90%
of the Fund's annual gross income must consist of dividends, interest and
certain other types of qualifying income, and no more than 30% of its annual
gross income may be derived from the sale or other disposition of securities or
certain other instruments held for less than 3 months. Foreign exchange gains,
derived by a Fund with respect to a Fund's business of investing in stock or
securities, or options or futures with respect to such stock or securities,
constitutes qualifying income for purposes of the 90% limitation.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to a Fund's principal business of investing in stock or
securities and related options or futures. Under current law,
non-directly-related gains arising from foreign currency positions or
instruments held for less than 3 months are treated as derived from the
disposition of securities held less than 3 months in determining a Fund's
compliance with the 30% limitation. A Fund will limit its activities involving
foreign exchange gains to the extent necessary to comply with these
requirements.
Foreign securities which meet the definition in the Code of a Passive Foreign
Investment Company ("PFIC") may subject a Fund to an income tax and interest
charge with respect to such investments. To the extent possible, a Fund will
avoid such treatment by not investing in PFIC securities or by adopting other
tax strategies for any PFIC securities it does purchase.
If a Fund owns shares in a foreign corporation that constitutes a PFIC for
federal income tax purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of the Code, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" it receives from the PFIC or any gain it derives from the
disposition of such shares, even if such income is distributed as a taxable
dividend by the Fund to its U.S. shareholders. A Fund may also be subject to
additional interest charges in respect of deferred taxes arising from such
distributions or gains. Any federal income tax paid by a Fund as a result of its
ownership of shares in a PFIC will not give rise to a deduction or credit to the
Fund or to any shareholder. A PFIC means any foreign corporation if, for the
taxable year involved, either (i) it derives at least 75% of its gross income
from "passive income" (including, but not limited to, interest, dividends,
royalties, rents and annuities), or (ii) on average, at least 50% of the value
(or adjusted basis, if elected) of the assets held by the corporation produce
"passive income."
On April 1, 1992, proposed U.S. Treasury regulations were issued regarding a
special mark-to-market election for regulated investment companies. Under these
regulations, the annual mark-to-market gain, if any, on shares of stock held by
a Fund in a PFIC would be treated as an excess distribution received by the Fund
in the current year, eliminating the deferral and the related interest charge.
Such excess distribution amounts are treated as ordinary income, which a Fund
will be required to distribute to shareholders even though the Fund has not
received any cash to satisfy this distribution requirement. These regulations
would be effective for taxable years ending after promulgation of the proposed
regulations as final regulations.
The Investment Grade Income Fund may be subject to foreign withholding taxes on
income from certain of its foreign securities. Because the Fund has invested and
intends in the future to invest 50% or less of its total assets in securities of
foreign corporations, it is not entitled under the Code to pass through to its
shareholders their pro rata share of the foreign taxes paid by the Fund. These
taxes will be taken as a deduction by the Fund.
Gain realized by a Fund from transactions entered into after April 30, 1993 that
are deemed to constitute "conversion transactions" under the Code and which
would otherwise produce capital gain may be recharacterized as ordinary income
to the extent that such gain does not exceed an amount defined by the Code as
the "applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of a Fund's expected return is
attributable to the time value of the Fund's net investment in such transaction
and any one of the following criteria are met: 1) there is an acquisition of
property with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed income
amount, which represents the deemed return on the conversion transaction based
upon the time value of money, is computed using a yield equal to 120 percent of
the applicable federal rate, reduced by any prior recharacterizations under this
provision or Section 263(g) of the Code concerning capitalized carrying costs.
The Trust's Underwriter
- --------------------------------------------------------------------------------
Pursuant to underwriting agreements in effect until March 31, 1996, Distributors
acts as principal underwriter in a continuous public offering for shares of each
series and class of the Trust. The underwriting agreements will continue in
effect for successive annual periods provided that their continuance is
specifically approved at least annually by a vote of the Board, or by a vote of
the holders of a majority of each Fund's outstanding voting securities, and in
either event by a majority vote of the Trust's trustees who are not parties to
the underwriting agreements or interested persons of any such party (other than
as trustees of the Trust), cast in person at a meeting called for that purpose.
The underwriting agreements terminate automatically in the event of their
assignment and may be terminated by either party on 60 days' written notice.
Distributors pays the expenses of the distribution of each Fund's shares,
including advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Funds pay the expenses of
preparing and printing amendments to the Trust's registration statement and the
Funds' prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
Until April 30, 1994, Distributors allowed the entire underwriting commission on
the sale of each Fund's shares to the securities dealer of record, if any, on an
account. After April 30, 1994, the Corporate Qualified Fund was the only series
of the Trust which continued to do so while the Rising Dividends and Investment
Grade Funds changed their sales charges and dealer reallowance structure. The
following table shows the aggregate underwriting commissions for the past three
fiscal years:
Amount
Retained
After Payment
Underwriting to Securities
Fund Commissions Dealers
- --------------------------------------------------------------------------------
Corporate Qualified Fund
Fiscal Year September 30
1993*..................... $ 80,044 $ 210
1994...................... 123,950 0
1995...................... 112,146 299
Rising Dividends Fund
1993*..................... 5,954,053 2,342
1994...................... 1,072,849 14,686
1995...................... 398,797 43,504
Investment Grade Fund
1993*..................... 190,069 378
1994...................... 149,801 1,572
1995...................... 75,773 4,992
*Covers a nine-month period.
Effective February 1, 1995, Distributors may be entitled to retain net
underwriting discounts and commissions in connection with redemptions or
repurchases of shares. None were retained for the period ending on September 30,
1995. Distributors may be entitled to reimbursement under the distribution plans
of the Funds as discussed below. Except as noted, Distributors received no other
compensation from the Funds for acting as underwriter.
Distribution Plans
The Corporate Qualified Fund, the Investment Grade Fund and each class of the
Rising Dividends Fund have adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act. (The following discussion will refer to the "Class I
Plan" for all Funds, "Class II Plan" for Class II Rising Dividends Fund only, or
"Plan[s]").
The Class I Plans
Pursuant to the Class I Plans, each Fund may pay up to a maximum of 0.25% per
annum of the Fund's average daily net assets, payable monthly, for expenses
incurred in the promotion and distribution of Class I shares.
Pursuant to the Class I Plans, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum stated above) for actual expenses
incurred in the distribution and promotion of Class I shares, including, but not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Class I shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. In addition, for the Rising Dividends
Fund, the Plan provides that up to an additional 0.25% may be paid to
Distributors or others as a service fee to reimburse such service providers for
personal services provided to shareholders of the Fund and/or the maintenance of
shareholder accounts. Thus, the amounts payable under the Plan relating to the
Rising Dividends Fund total 0.50%.
The Class I Plans do not permit unreimbursed expenses incurred in a particular
year to be carried over to or reimbursed in subsequent years.
The Class II Plan
Under the Class II Plan, the Rising Dividends Fund pays to Distributors up to
0.75% per annum of the average daily net assets of Class II, payable quarterly,
for distribution and related expenses. These fees may be used to compensate
Distributors or others for providing distribution and related services and
bearing certain Class II expenses. All expenses of distribution and marketing
over this amount will be borne by Distributors or others who have incurred them
without reimbursement by the Fund. Under the Class II Plan, the Fund also pays
an additional 0.25% per annum of the average daily net assets of Class II,
payable quarterly, as a servicing fee. This fee will be used to pay dealers or
others for, among other things, assisting in establishing and maintaining
customer accounts and records; assisting with purchase and redemption requests;
receiving and answering correspondence; monitoring dividend payments from the
Fund on behalf of customers; and similar activities related to furnishing
personal services and maintaining shareholder accounts. At the time of
investment, Distributors may pay the securities dealer a commission of up to 1%
of the amount invested out of its own resources.
Class I and Class II Plans. In addition to the payments that Distributors or
others are entitled to under the Plans, each Plan also provides that to the
extent the Fund, the Manager or Distributors or other parties on behalf of the
Fund, the Manager or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of shares of
each class within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the Plan. The terms and
provisions of the Plans relating to required reports, term, and approval are
consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plans, plus any other payments deemed to be made
pursuant to the Plans, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
Article III, Section 26(d)4.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing such services, you would be
permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In such an event, changes in the
services provided might occur and you might no longer be able to avail yourself
of any automatic investment or other services then being provided by the bank.
It is not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans are effective through and renewable annually by a vote of the Board,
including a majority vote of the trustees who are non-interested persons of the
Fund and who have no direct or indirect financial interest in the operation of
the Plans, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. The Plans and any related agreement may be terminated
at any time, without penalty, by vote of a majority of the non-interested
trustees on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with the Manager or by vote of a majority of the
outstanding shares of the class. Distributors or any dealer or other firm may
also terminate their respective distribution or service agreement at any time
upon written notice.
The Plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the Plans
or any related agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of voting on any
such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the Plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plans should be continued.
For the fiscal year ended September 30, 1995 the total amount paid pursuant to
each Plan was $62,121 by the Corporate Qualified Fund, $1,136,963 by Class I
Rising Dividend Fund, $1,508 by Class II Rising Dividend Fund and $61,588 by
Investment Grade Fund, which amounts were all paid by Distributors in the
aggregate to broker-dealers.
General Information
- --------------------------------------------------------------------------------
Performance
As noted in the Prospectuses, each series or class of the Trust may from time to
time quote various performance figures to illustrate past performance of a
series or class and may occasionally cite statistics to reflect its volatility
or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
each series or class be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the series or class are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the series or class to compute or
express performance follows.
Total Return
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or fractional
portion thereof, that would equate an initial hypothetical $1,000 investment to
its ending redeemable value. The calculation assumes the maximum front-end sales
charge is deducted from the initial $1,000 purchase order, and income dividends
and capital gains are reinvested at net asset value. The quotation assumes the
account was completely redeemed at the end of each one-, five- and ten-year
period and the deduction of all applicable charges and fees. If a change is made
on the sales charge structure, historical performance information will be
restated to reflect the maximum front-end sales charge currently in effect.
In considering the quotations of total return by a series or class, you should
remember that the maximum front-end sales charge reflected in each quotation is
a one time fee (charged on all direct purchases) which will have its greatest
impact during the early stages of your investment in a Fund. This charge will
affect actual performance less the longer you retain your investment in a Fund.
The average annual compounded rates of return for each Fund for the indicated
periods ended on September 30, 1995 was as follows:
One- Five- From
Fund Name Year Year Inception
- --------------------------------------------------------------------------------
Corporate
Qualified Fund......... 3.68% 9.89% 6.14%+
Rising Dividends
Fund, Class I.......... 14.91% 12.82% 8.49%+
Rising Dividends
Fund, Class II......... n/a n/a 12.56%*+
Franklin
Investment Grade
Income Fund............ 3.62% 7.34% 5.76%+
+inception date 1/14/87
*inception date 5/1/95
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year periods at the end of the one-, five-,
or ten-year periods (or fractional portion thereof)
As discussed in each Fund's Prospectus, each series or class may quote total
rates of return in addition to its average annual total return. These quotations
are computed in the same manner as the average annual compounded rate for the
series or class, except they will be based on the actual return for a specified
period rather than on the average return over one-, five- and ten-year periods,
or fractional portion thereof. The total rates of return for each series or
class for the indicated periods ended on September 30, 1995 was as follows:
One- Five- From
Fund Name Year Year Inception
- --------------------------------------------------------------------------------
Corporate
Qualified Fund........ 3.68% 60.25% 68.07%+
Rising Dividends
Fund Class I.......... 14.91% 82.76% 103.40%+
Rising Dividends
Fund Class II......... n/a n/a 12.56%*
Investment
Grade Fund............ 3.62% 42.52% 62.99%+
+inception date 1/14/87
*inception date 5/1/95
Current Yield
The current yield of each Fund and class reflects the income per share earned by
a Fund's portfolio investments and is determined by dividing the net investment
income per share of each class earned during a 30-day base period by the maximum
offering price per share on the last day of the period and annualizing the
result. Expenses accrued for the period include any fees charged to all
shareholders of a class during the base period. The yield for the 30-day period
ended on September 31, 1995 was as follows:
Fund Amount
- --------------------------------------------------------------------------------
Corporate Qualified Fund...................... 4.82%
Rising Dividends Fund, Class I................ 1.76%
Rising Dividends Fund, Class II............... 1.31%
Investment Grade Fund......................... 4.63%
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b + 1 ) - 1]
----
cd
where
a = dividends and interest earned during the period
b = expenses accrued for the period (net of any waiver)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
The Corporate Qualified Fund may also quote an equivalent fully taxable yield
which demonstrates the taxable yield necessary to produce an after-tax yield
equivalent to that of a fund which invests in instruments which qualify for the
70% corporate dividends-received deduction and assumes an effective maximum
federal tax rate of 10.5% on dividend income received from the Fund. This tax
rate is based on the maximum corporate tax rate of 35% for 1995. Such yield is
computed by dividing a current net asset value by the amount of after-tax income
received at the current yield (computed as described above and assuming 100% of
the yield qualifies for the corporate dividends-received deduction) divided by
one minus the applicable corporate tax rate. The equivalent fully taxable yield
would not be an appropriate comparison for individuals. The taxable equivalent
yield, computed as noted above, for the 30-day period ended on September 30,
1995 was 6.64%.
Current Distribution Rate
Yield which is calculated according to a formula prescribed by the SEC is not
indicative of the amounts which were or will be paid to the Funds' shareholders.
Amounts paid to shareholders are reflected in the quoted current distribution
rate. The current distribution rate is computed by dividing the total amount of
dividends per share paid by a Fund during the past 12 months by a current
maximum offering price. The Corporate Qualified Fund may also quote an
equivalent fully taxable distribution rate which demonstrates the taxable
distribution rate equivalent to the Corporate Qualified Fund's current
distribution rate (calculated as indicated above). Under certain circumstances,
such as when there has been a change in the amount of dividend payout or a
fundamental change in investment policies, it might be appropriate to annualize
the dividends paid over the period such policies were in effect, rather than
using the dividends during the past 12 months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, such as premium
income from option writing and short-term capital gains, and is calculated over
a different period of time.
Volatility
Occasionally statistics may be used to specify Fund volatility or risk. Measures
of volatility or risk are generally used to compare Fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by an
index considered representative of the types of securities in which a Fund
invests. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average over
a specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
Other Performance Quotations
For investors who are permitted to purchase Class I shares at net asset value,
sales literature pertaining to Class I may quote a current distribution rate,
yield, total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of net
asset value for the public offering price.
Sales literature referring to the use of a Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily indicative of
future results, but is an indication of the return to shareholders only for the
limited historical period used.
The Funds may include in their advertising or sales material information
relating to investment objectives and performance results of funds belonging to
the Templeton Group of Funds. Resources is the parent company of the advisors
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.
Comparisons
To help you better evaluate how an investment in one of the Funds might satisfy
your investment objective, advertisements and other materials regarding a Fund
may discuss various measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
Such comparisons may include, but are not limited to, the following examples:
a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue- chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines - provide
performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long- term government bonds, Treasury bills, and inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J. P. Morgan companies, Salomon Brothers, Merrill Lynch, Lehman
Brothers and Bloomberg L.P.
m) Standard & Poor's 100 Stock Index - an unmanaged index based on the prices of
100 blue- chip stocks, including 92 industrials, one utility, two transportation
companies, and 5 financial institutions. The S&P 100 Stock Index is a smaller
more flexible index for options trading.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare the performance of a class to the
return on certificates of deposit or other investments. You should be aware,
however, that an investment in the Funds involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of a Fund's fixed-income investments, as well as the value of
its shares which are based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of a
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in a Fund
is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Funds' portfolios, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Funds to calculate their figures. In
addition, there can be no assurance that the Funds will continue this
performance as compared to such other averages.
From time to time, advertisements or information for the Rising Dividends Fund
may include a discussion of certain attributes of investing in a fund with its
investment philosophy of investing in public companies that constantly raise
their dividends and should, over time, also enjoy increases in the price of
their stock.
Other Features and Benefits
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and/or
other long-term goals. The Franklin College Costs Planner may assist you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Funds cannot guarantee that such goals will be met.
Miscellaneous Information
The Funds of the Trust are members of the Franklin Templeton Group of Funds, one
of the largest mutual fund organizations in the United States, and may be
considered in a program for diversification of assets. Founded in 1947,
Franklin, one of the oldest mutual fund organizations, has managed mutual funds
for over 48 years and now services more than 2.4 million shareholder accounts.
In 1992, Franklin, a leader in managing fixed-income mutual funds and an
innovator in creating domestic equity funds, joined forces with Templeton
Worldwide, Inc., a pioneer in international investing. Together, the Franklin
Templeton Group has over $135 billion in assets under management for more than
3.9 million U.S. based mutual fund shareholders and other accounts. The Franklin
Group of Funds and the Templeton Group of Funds offers to the public 114 U.S.
based mutual funds. The Funds may identify themselves by their NASDAQ symbols or
CUSIP numbers.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past seven years.
Employees of Resources or its subsidiaries who are access persons under the 1940
Act are permitted to engage in personal securities transactions subject to the
following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed within 24
hours after clearance; (ii) copies of all brokerage confirmations must be sent
to a compliance officer and, within 10 days after the end of each calendar
quarter, a report of all securities transactions must be provided to the
compliance officer; and (iii) access persons involved in preparing and making
investment decisions must, in addition to (i) and (ii) above, file annual
reports of their securities holdings each January and inform the compliance
officer (or other designated personnel) if they own a security that is being
considered for a fund or other client transaction or if they are recommending a
security in which they have an ownership interest for purchase or sale by a fund
or other client.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Trust's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Funds. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Funds' assets if you are held personally liable for
obligations of the Funds. The Declaration of Trust provides that the Funds
shall, upon request, assume the defense of any claim made against you for any
act or obligation of the Funds and satisfy any judgment thereon. All such rights
are limited to the assets of the Funds. The Declaration of Trust further
provides that the Funds may maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Funds, its shareholders, trustees, officers, employees and agents to cover
possible tort and other liabilities. Furthermore, the activities of the Funds as
investment companies, as distinguished from operating companies, would not
likely give rise to liabilities in excess of the Funds' total assets. Thus, the
risk of you incurring financial loss on account of shareholder liability is
limited to the unlikely circumstances in which both inadequate insurance exists
and the Funds themselves are unable to meet its obligations.
The Corporate Qualified Fund changed its name from the Franklin Corporate Cash
Portfolio effective May 1, 1991.
Ownership and Authority Disputes
In the event of disputes involving multiple claims of ownership or authority to
control a shareholder's account, a Fund has the right (but has no obligation)
to: (a) freeze the account and require the written agreement of all persons
deemed by the Fund to have a potential property interest in the account, prior
to executing instructions regarding the account; (b) interplead disputed funds
or accounts with a court of competent jurisdiction; or (c) surrender ownership
of all or a portion of the account to the Internal Revenue Service in response
to a Notice of Levy.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements contained in the Annual Report to Shareholders
of the Trust dated September 30, 1995, including the auditors' report, are
incorporated herein by reference.
Appendix
- --------------------------------------------------------------------------------
Description of Corporate Bond Ratings
Moody's
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
